In the most recent podcast, I talked about how useful it can be to just talk a stock idea through whether that is with someone a lot smarter than you, a peer of about equal investing skill, or anyone else for that matter.
I talk a lot with people on Skype about stock ideas they choose.
And they often tell me how helpful I was in coming up with some insight – some way of thinking about their stock idea – that they themselves hadn’t seen. It’s a nice compliment. But, it’s entirely undeserved. People often think that ideas they themselves had during a discussion must have been someone else’s ideas because they hadn’t had that insight back when they were analyzing the stock quietly on their own. Since they thought of this bright idea when they were in the middle of talking a stock through with someone else, that someone else must be the one who prompted the bright idea.
It doesn’t work that way.
The truth is that it’s not the someone else that matters. It’s just talking the idea through that matters. If you weren’t too self-conscious to do it – you could talk to a cubicle wall, that troll doll on your desk, or a bathroom mirror. They’re all good investing partners because they all listen.
If you could go into a quiet room, set a timer for one hour, and then start talking through your stock idea out loud till that timer dinged – you’d have a lot clearer idea of what you think about a stock and why than you get from the way you are probably doing it now.
Obviously, you’re not going to do that. Nothing I can say is going to convince you to talk to yourself out loud for an hour.
But, there are cheats. There are ways to trick yourself into doing functionally the same thing without embarrassment.
What are they?
One, you can write a blog. I write a blog. I get to talk to a lot of great people about interesting stock ideas. But, I also get to put down whatever ideas I have in writing. On this blog, I really only discuss general investing concepts now. My specific stock writing is done at Focused Compounding. Over there: from time to time, I’ve done what I call an “initial interest post” where I will write about some stock and at the end say my interest level is 10% in this stock idea, 90% in that stock idea, etc.
I’d be looking at these stocks anyway. Writing them up like that is a way of recording my own pipeline of ideas. Some subscribers have told me they like those write-ups better than true stock picks. They like reading about all the stocks I don’t like right off the bat and why I don’t like them. So, maybe it is useful to others. But, the reason those articles are formatted like that is because I’m constantly looking at stocks and deciding whether or not to follow up on that idea. What I’m doing in those write-ups is very similar to what I’d do on my own. So, writing about a new stock I’ve come across is a way of talking to myself in print. Typing up an idea doesn’t make you look as crazy as talking through an idea out loud. And it has the same benefits. It clarifies your thinking on the subject.
The podcast episodes we’ve done on specific stocks – NIC (EGOV), Frost (CFR), Cheesecake Factory (CAKE), Omnicom (OMC), NACCO (NC), and Tandy (TLF) – are all examples of me talking to myself about a stock by talking to Andrew about a stock. We recorded the discussion and shared it with listeners. But, I’d say that in 5 of those 6 cases, the reason for picking that specific stock at that specific moment in time was a selfish one. I was thinking about NIC or Frost or Cheesecake or Omnicom at that time and doing a podcast on the stock helped me work through my most up to date thoughts on the company.
I’d say NACCO was an exception. It’s a stock I had owned and written about behind a paywall a while back and we always thought it was something we should share with podcast listeners. We just didn’t think the stock was cheap enough (that is, as cheap as I had bought it for) till it dropped a bit right before that podcast. In that one case, I’d say the catalyst for the podcast wasn’t a selfish one. I wasn’t thinking that stock through myself when we recorded that podcast. I already owned it and I knew I wasn’t going to buy any more shares or sell any shares for many months to come.
So, that’s number two. One, you can write a blog. Two, you can record a podcast. What’s three? You can meet in person. Andrew and I do this every week. We each research a stock on our own. Then, we meet in person and discuss it. We usually talk about one stock for about 3 hours. Sometimes, after that talk – we go back to do our own follow up analysis. Usually it’s tracking down numbers and answering questions we hadn’t addressed the first time around that were then suggested to us by the other person. But, very often, we don’t even do that. We simply do our own solo analysis. And then we meet and talk together about a stock for 3 hours. We compare notes. We ask questions. We each state our case. And we come away from it not just clearer on what the other person thinks but clearer on what we think.
The fourth thing you can do is talk to someone not in person. Use the internet. There are other value investors out there. Most people don’t have people in their life who care as much about the stocks they care about as much as they do. It’s unrealistic to expect you can sit down once a week for three hours and just talk stocks with some local friend. But, it’s not unrealistic when you expand that search from offline friend to online friend. For any stock out there, you should be able to find someone who is as interested in the idea as you are.
What are the rules for talking an idea through?
Be yourself. Talk like yourself. Don’t apologize for having different opinions. And don’t feel you have to defend your opinions. Just state your analysis as fact. If someone disagrees with your analysis – they’ll do exactly that. They’ll disagree with your analysis instead of with you personally. The other things – and this is especially important when meeting with someone who you often agree with – is to remember there’s no such thing as veto power. You are investing your own money. You don’t need to win anyone over to your way of thinking.
I talk with a lot of investors on Skype. I’ve heard a lot of solid ideas. I’m not sure I’ve ever said: “oh, that’s such a good idea I think I should invest in it myself right now”. On some level, that means I “disagreed” with that person’s favorite stock idea. I didn’t think it was a good enough idea for me to drop everything and buy it. Yet they probably did come in thinking exactly that. Does that mean they failed to win me over?
That’s not the point. You’re not trying to win anyone over or impress anyone. You’re trying to think out loud for your own benefit. Don’t think of your stock talk sessions as an arena for arguments. What they are instead is just a place and time for guided thinking.