Jump without Fear
A short-one from us as we are on a mini-holiday this week, but considering the current market volatility we thought it would be fun to write this piece.
I turned 33 this week, and started to have that slight panic about whether or not I’m living my life to the fullest. Considering we all have a good chance of living to 100+ years old, I can’t really call it a mid-life crisis, it was more of a mid-mid life crisis. Don’t get me wrong, I love my life, but every now and then I wonder – is there more to life than investing in financial markets and staying at home on weekends? Well, as much as I want to say “no” – I did decide to do something exciting for a change, and sign up to go bungee jumping on my birthday.
Now if you’ve never been bungee jumping, it goes something like this. You are taken up a tall tower/building in a lift – this one was 47 meters high, asked to take nothing with you (so make sure to say goodbye to your loved ones beforehand), have your legs tightly wrapped by a towel (I am not kidding) and then strapped into a stretchy rope with far too much slack by two barely-out-of-their-teens hipsters, walked out onto a ledge and given literally 5 seconds to leap into a swimming pool you pray is deep enough. If this sounds terrifying – I feel you. But surprisingly, I wasn’t scared. I had quite a bit of that anxious/excited energy that comes with any activity that will release adrenaline; but I had no fear for my safety/life. Upon reflection, the reason for this was simple. I knew the risk was minimal. For one (despite what the media might make you think), bungee jumping is safer than many other activities we do (funnily enough, getting in a car is one of the most dangerous activities we undertake on a regular basis). Second, the company I did the bungee with, AJ Hackett, is probably the best known brand in bungee and over 4 million jumps with zero serious accidents/fatalities, and lastly, I was doing it in Singapore where safety and solid infrastructure are synonymous with the nation. So knowing all this first-hand, I wasn’t really worried.
As markets correct as they have done in the last week or so (Nasdaq down 10.31%, S&P 500 down 7.89%, MSCI World down 6.74%), it’s easy to start to feel fear and panic. We’ve written ad nauseam about what we think you should do when markets correct (you can read this, this, or this blog post) so we won’t go into that again, but like with the bungee experience, the only way we know to control our fear is to really know what we’re getting into and the risks involved. Obviously this only comes with knowing the assets you hold really well. Now, it’s easy enough to say the constantly repeated adage of “do your own due diligence” but how to do that due diligence is more interesting. Below we’ll reveal those tips and tricks for doing your own research. The goal here is that your arm yourself with the right tools, and through those tools gets the right information to feel secure about your investments. Only then will you be able to leap without fear, stay calm, and enjoy the ride (Do note we get zero financial incentives from any of the services mentioned below).
1) Annual reports, quarterly reports, earnings transcripts – This is pretty basic stuff but we would be remiss if we didn’t mention it. It’s really important you go through the filings, which for the first two can be accessed for free on the company’s website or via the exchange. However we feel that it’s equally important to go through the call transcripts – which SeekingAlpha will provide to you for ~US$30/month. By going through this you will get a great sense of the risks/opportunities/and metrics that are important straight from the company’s mouth.
2) Expert Conversations – It’s really important you speak to people in the know. This can include current/ex-employees, customers, and competitors of the company you’re planning on investing in. This is where LinkedIn is super powerful and connecting via your network to people in the know is made easier. If your network isn’t strong enough, there are excellent services (like Tegus) that make the job easy for you, but with a hefty fee. Whether you go via the cheaper LinkedIn route or through expert networks, the trove of expert conversations is where you get all the info the company won’t tell you and frank opinions about the company’s competitive advantage, culture, and management.
3) Industry blogs – it’s imperative that if you invest in a particular industry you try to know as much about it as you can. If you’ve never worked in that industry or don’t have first-hand knowledge, blogs (and podcasts) are a great way of learning about them. If you invest in tech for example, Ben Thompson’s Stratechery blog is well worth the US$12/month.
4) Web/app tracking – there are tons of tools here, but if you’re investing in a B2C companies it’s really important to track how the app downloads (AppAnnie), or website traffic (SimilarWeb), or key search terms (Google Trends) are doing. This will give you a sense of how the product or service has been doing lately.
5) Sell-Side forums – This one is hard to do, but Peter Lynch always said that when you’re about to make an investment, write out all the reasons you’re investing on a single piece of paper. If you can’t clearly articulate your reasoning, you probably don’t know enough (don’t jump!). If you can stretch that one-pager to say 1500-2000 words it’s worth posting your thesis on SeekingAlpha or sell-side sites like SumZero. This is where your ideas will get tested, criticized, and the bear case revealed by other smart investors. Testing your ideas in public like this will give you the comfort that you’ve covered all your bases (doesn’t mean you’ll be right but does imply you’ve made every effort you can to ensure you’re right).
If this all seems like a lot of work, it is (in fact it can be months of work). But to truly have no fear before jumping (investing), you must do the work and find the information that give you comfort. This deep understanding is the only thing that will help you buy more when prices fall and hold on when your investment goes up 2-3x. We hope the tools we’ve mentioned above are useful and give you the ability to leap without fear. Oh, and if you want to see me dive headfirst into a pool from 47 meters up, here’s the video :)
Happy investing all!