Sheer Arrogance

Taken from a blog's comment section, posted somewhere in May 2008:

"I do not base my picks on just NAV.

If you bother reading my blog from the start, you will find that a good portion of my portfolio was bought at prices that have since doubled or trebled.

Any old fogey can tell you to buy blue chips when they are distressed. In theory that sounds good, but it is not as simple to apply.

And the last I checked, most old fogies have less money than me in their bank."

For those who do not know, the person who made that comment has definitely a tidy sum of money in his bank account, probably around $300,000.

For clarity, this was what the blog owner was responding to:

"undervalued never works, buying blue chips in distressed markets works eventually they all shine

if u base your picks on NAV, the question is that how the market ignores them in the first place?"

The commenter did make a fair comment although I would hesitate to say buying undervalued stocks never work. Never say never.

But that is not the point. The blog owner's reply was sheer arrogance because the fact that he has more money in his bank account is not proof that his stock picking methods are successful to a large extent. Rather, the performance of his stock portfolio over a long period of time, would suffice in demonstrating to the commenter that his NAV-centric stock picking methods works.

I can link you to the blog to read the full extent of his hubris if you email me. But to summarize, he did turn the money that was in his bank account into a lot of money, doubling it to more than half a million in stocks at the height of the stock market in 2007-8. He was at ease dispensing advice to those who frequented his blog seeking an opinion. I believe he even tried to use his blog as a testimonial of his equity market acumen so as to land an investment banker job.

However the tide turned, something we knew after the fact. The portfolio shriveled and the blog owner disappeared. Despite people calling out for him on his blog, he has not replied aver since.

The point here is not to castigate him for his arrogance. Rather, it is meant as a cautionary tale for all retail investors, especially the new. There is nothing wrong with being confident. You have to be confident, if not why should you put money in the stock. However, as so many have pointed out, just because you happened to ride the wave up, does not make you a stock market genius. It is this over confidence and hubris that will be fatal for your wealth creation plans when a bear market strikes. Always have an open mind and be prepared.