“Can’t Argue with Stupid” — great article, great lesson learned. Any CEO/company in particular that triggered this topic? Anything we should beconcerned about?
Love your site! It’s a great compliment to the work that Fleck does. Very cool to read about these truly “leading edge” ideas that you explore!
I’m honored that you think this site is in the same category as Fleck’s….
I probably shouldn’t say which company it was. These guys have bugged me for years now and I finally threw in the towel this week. I should have done it two years ago, but it always seemed ‘cheap.’ Despite stunning screw-ups, I still had a small gain–hence the first rule is to buy something at such a margin of safety that it’s pretty hard to lose money. I would have preferred to have my capital invested in something much better over this time….. It isn’t a company I have ever mentioned on this site.
With respect to your comment on 12/23 about selling–the other option is proxy battle/takeover. But certainly a big headache.
I’ve thought about that a few times. It’s like a dog chasing a car. What do you do when you win?? The last thing on earth that I want to do is try to untangle a screwed up public company. I’d rather just sell at 20c on the dollar and be done. Besides, if you do a hostile, you never again get the same sort of access to public company management. I’d rather that management know that I am on their side and if they screw up, I’m just going to sell and move on.
Thank you for your wonderful article. This needs to be said and repeated ad nauseam until it sinks in. In fact I am going to frame “You Can’t Argue With Stupid” and put it on my wall near my computer where I can see it and read it everyday. Whenever you find yourself making excuses for stupid decisions made by a CEO its time to sell out and run for the hills. Where there’s one roach, there are hundreds. If you catch a guy making stupid mistakes, there are probably many others he is making behind the scenes.
I’ve received a number of emails like this. I figured I would post a few. When I look back at my investing mistakes over the years, probably my costliest mistake is justifying bad management because the company seems cheap or they have other beneficial characters that I admire. I end up having to coach the guy through public company life and the majority of the time, he continues to make mistakes anyway. I’m just done with these guys from now on. I don’t care how hard it is to sell. I want out if they make amateur mistakes.
The sure fire signal of a disaster in the making is a CEO who has an ego about some aspects of his business that are just unjustifiable. All guys usually have some skills as you mention but usually where they lack a particular skill they acknowledge that and recruit accordingly. The danger sign is the guy who thinks he’s good at multiple aspects and refuses to acknowledge that he isn’t even in thevery teeth of evidence. Then you’re f*&^%ed.
You’re better off waiting for the business to be destroyed and pick up the pieces for cents on the dollar and finding a competent guy to run it where you see underlying value.
Figure I’d post this one too. Great advice!
Is talking to people your best source for your investing ideas? In this busy-noisy world the investor challenge seems to be learning to ignore the ‘Junk ideas'(the noise) and pay attention to the potential Golden nuggets?
Any insight into how you filter out the noise and find the handful of ideas to investigate?
I wish I had a solution. It really just comes down to putting in 100 hour weeks. A brilliant friend of mine likes to say that “you have to kiss a whole lot of frogs to find a princess.” I think that sums it up. There are lots of dead-ends out there, but you never know until you look. I’m fortunate that I have a great network of friends who can help me filter it. If there’s a topic that I want to know about, someone will likely know a whole lot about it and save me weeks of effort at research. If one of my friends is excited about something, it’s usually worth looking because my friends tend to be smart guys.
Besides that, I just read a lot. Mostly, it comes down to finding macro thesis that I feel comfortable with. After I have a sector that interests me, it’s pretty easy to figure out which companies I want to learn more about. It’s not easy and I miss a whole lot of easy money. Wish I had a better answer for you–there isn’t one. Remember, you only need a few good ideas every few years to do quite well. Usually those great ideas just sort of find you.
Energold hasn’t been as weak as I’d hoped after their “bought deal” financing. Is that a comment on the strength of their business or will there be a rush to dump stock as the financing closes?
I had been hoping for a drop as well. I wanted a few more. Their business is on fire. That much is for sure. I also have heard that the shares were placed in good strong hands, but I am always skeptical of what brokers tell me.
How does a stock qualify to be a high growth multi-bagger in your view excluding margins, ROE, leverage products and management?
That’s the majority of the qualities I look for. You need to make sure you have a tailwind. You need the trend in your favor. Finally, I would add that you cannot overpay for these things. The price you pay is often even more important than the business itself in determining returns. It needs to be cheap.
Apart from analysis, what do you focus on for execution? In terms of trade timing and allocation? I often wait out for stocks to fall before buying and reluctant to buy when its on the uptrend but it often goes up far longer than I can imagine, and when it starts to fall, I will be reluctant to double down.
If it’s cheap, I buy. I’m usually looking to hold these things for years (or at least for a few-fold upside move) because I like the business. If I have to pay up a few percent, it shouldn’t matter if I think it’s worth many times the current quote. Of course, I’d prefer to buy it on a pullback, but sometimes you don’t have that option. I just buy it when I like it and ignore the charts, especially because I need millions of dollars worth of stock–I often become the chart as I buy. There are guys who are good at timing these things, I am not one of those guys. In terms of position sizing, if it drops below my cost basis and I still like it, I usually add.
How can I convince people to fund me, especially when there’s no track record or poor performance?
That’s a real pickle…. I have no clue. Good luck, I guess…..