Writing Things Down Can Make You a Better Investor
Last week I caught an article on Yahoo Finance titled Seven Ways to Simplify Your Investment Life. My favorite tip was #5: Jot Down Why You Own Each Investment.
When it comes to picking individual stocks, I love hearing the “why” behind a specific choice. I like hearing these rationalizations and the thinking that went before the trigger was pulled. Writing them down creates a little time capsule that you can’t argue with: that’s why you bought it at the time. If you don’t write it down, you can always change your story.
Being a writer, I can appreciate the value of writing things down—it’s a great way of reminding yourself of why you did something and thinking an idea through a little bit. And I’m not alone here—other bloggers also know the power of writing things down.
The Mock Portfolio
I used to have a Word document that I used as a paper-trading terminal. If I saw a stock I was interested in, I’d “buy” it by entering the date, the price, and the ticker symbol in the document. And then came the important part: the reason why I was buying it. Sometimes it was as simple as “read an article about it.” Other times, it was far nuanced. Stuff like “if things keep going the way they’re going, this company should hypothetically see an uptick in customers.”
Justifying the picks had a very interesting effect on my pretend investing—I felt like I had to have a good enough reason to virtually buy them. I had to answer to the mock portfolio for all these fake decisions.
Going back to check out the picks from my mock portfolio was fun back when the whole market wasn’t down on its knees begging for forgiveness. And taking a look back now is pretty interesting because most of my picks are underwater. Except for Goldcorp (GG), which I bought because:
Read about the CEO, had a competition to see who could find more gold, an open source type deal, pretty cool, was very successful. They’ve been acquiring left and right. It’s a commodity and they’re in Canada. But whatever, I’m in at 27.18.
That was back in January of ’07. Today, the stock is at $32.
But the most interesting entry to look back on is the very last one I ever wrote:
May 16, 2007
Watch List: BAC, C, JNJ, and PG
All this talk of impending doom makes me want to get ready. These are proven stocks, winners. All have a dividend too (for the Roth). So if and when this goes down, I’ll put my money into these companies when the downturn forces them down. Then I’ll hold them for the long run, obviously. I may have to pick one from BAC (MOS is less than half, not as good as C) and C (MOS is half of actual price) and another from JNJ (around half) and PG (actually pretty close, best one), since they are in similar industries. (spreadsheet numbers)
This is where the value of writing things down becomes obvious: it’s hard to think back on what we were all feeling in 2007, but it’s pretty clear there was some unease in the market. Investors were scared that something really bad was coming. They were right, and it looks like I was partially right too. The banks got killed but so did stalwart companies like JNJ and PG, which are now trading at a “discount” from their 2007 price.
It looks like it’s time to fire up the ol’ mock portfolio again and see what JNJ and PG can do for me in the future.
Photo by Star Dust
