An Interview with "Shelby Aldrich"

To spice things up a little, I decided to shift gears for a moment. My normal routine thus far has been to post a commentary on market conditions of the day or, in the alternative, to argue the merits of Contrary Opinion. This morning, let's try something different. Imagine that I am being interviewed by a fictional reporter, "Shelby Aldrich" of the "Summerlin Gazette." We are in the Reading Room at the Public Library in Summerlin, an affluent neighborhood in Las Vegas. The Summerlin library offers a wonderful view of the mountains, particularly in the wintertime when the air is crisp and mountain snow reaches from the blue skies to the brown desert floor below.

Shelby: Good morning, Wink. Thank you for sharing your insights on the markets. I know you have several commitments with your kids, so I appreciate the opportunity to chat with you.

Wink: My pleasure. My oldest is dying to go to a play with his friend. My youngest two kids have soccer games, so Saturday mornings are busy for us.

Shelby: Were you always interested in the markets?

Wink: No, not at all. When I was growing up, I wanted to be President. LOL! I also loved history. When I was in junior high school, I would read a book a day. History and politics--those were my passions. I loved to read. I loved student government.

Shelby: What happened?

Wink: Well, I grew up and went off to college. There, I discovered I was an introvert at heart. And introverts are not really good at glad- handing. I remember cringing at the idea of seeing my picture on campaign posters. It was then and there that I decided the White House was not in my future. Smile.

Shelby: Was there any talk around the dinner table about the market or stocks?

Wink: None. Zip. I do remember that my mother admired my favorite Uncle, "Nelson." Nelson had acquired 16 properties in two states. He had no mortgage debt that my mom knew of. Nelson always bought at a discount, 50 cents on the dollar or less. My mom would sing Uncle Nelson's praises morning, noon, and night. So, I soaked in an admiration for successful entrepreneurs from my mom. I remember subscribing to Black Enterprise Magazine in high school. I would read about the successes of Earl Graves, John Johnson, and Reginald Lewis. I always thought they were just like my Uncle Nelson, just on a larger playing field. So, there wasn't talk about the market or stocks. There was a deep reverence, however, for Uncle Nelson and his success as an entrepreneur.

Shelby: When did you become interested in the market and stocks?

Wink: When my oldest child was born in 1996, I got the idea that I should have a custodial account for him. A custodial account seemed like a far-sighted thing to do. I've always had dynastic tendencies, so the idea of an account spanning the generations appealed to me. But I knew nothing about the market or stocks. Before my wife and I got married in 1991, we sought out a wonderful financial planner and adviser in Washington, D.C., "J.D." J.D. reviewed our financial status and urged us to place our discretionary savings into a well-regarded mutual fund. The mutual fund performed well as far as mutual funds go. I think we got maybe a 5% to 10% return over 5 years. I had no complaints. I didn't know better.

Shelby: What do you mean by "you didn't know better?"

Wink: Well, as I began to research the market, I discovered that my mutual fund was under performing many stocks and even the S&P 500 Index. Mind you, we were in the middle of the great Bull Market of the 1990s. Why was my mutual fund under performing the market? I then learned that most professional money managers underperformed the S&P 500 Index. I was intrigued by this fact. I didn't know A from B but I knew that someone was beating the market.

Shelby: What motivated you to dig deeper for an answer? Most busy professionals don't have the time or inclination to do their own research. Either they lack the training or the credentials or they just assume its a big old casino.

Wink: Several reasons come to mind. Number 1, I come from a long line of stubborn people. "Bull-headed" is the term that my Virginia relatives would use. My DNA led me to question the process, not myself. Number 2, my grandfather-in-law had parleyed his savings into a wonderful nest egg by investing with Charles Schwab. So, I knew from personal experience that it was possible to invest and to do well. Number 3, I am an intellectual. I love intellectual puzzles. The idea of figuring out the market seemed as good a puzzle as any.

Shelby: So, where did your "Bull-headedness" lead you?

Wink: I remember buying a copy of Forbes and Fortune magazine one day. I sat down in the living room by the fire place and read both magazines from cover to cover. I tried to size up which company had the best growth prospects. I was a babe in the woods! LOL! After my analysis of every company discussed in the two magazines, I decided upon Intel. I thought they had great growth prospects based upon their role in the computer industry.

Shelby: Did you have second-doubts? Fears? Anxieties? I mean, you had no background or experience in picking stocks at all.

Wink: I trusted my analysis at the time. I was also motivated to beat the rate of return in my mutual fund. I wasn't worried or fearful.

Shelby: What happened?

Wink: I invested a few thousand dollars for my oldest child in Intel. The investment was profitable. I think I made a 50% profit after a few years. You have to remember that we were entering the go-go years of the late 1990s. I had made a profit but I was also greedy and saw how other stocks were outperforming Intel. So, I didn't feel a great sense of satisfaction with the investment.

Shelby: It sounds like you are an overachiever.

Wink: You know, the first person to call me an overachiever was my faculty adviser, Larry Sabato, in college. I had wanted to take a third-year level course even though I was only a first-semester student. Hubris, I tell you, hubris! Anyway, Larry said I was an overachiever. I didn't really know how to take his comment at the time. I still don't. I wrestle with his comment to this day.

Shelby: I think what I am getting at is that most investors would have been tickled to death to have earned a 50% rate of return, particularly on their first investment ever with no prior training or experience.

Wink: I hadn't thought of it that way before. Its not uncommon for novices to stumble into a winning investment or trade the first time out. Its how you handle and learn from failure that separates the long-timers from the flashes in the pan.

Shelby: What happened after Intel?

Wink: When my second child was born in 1997, I repeated the process. I bought an issue each of Forbes and Fortune magazine. I sat down in the living room by the fireplace. I read both magazines from cover to cover and tried to size up which company had the most promising prospects. Which company seemed destined to best profit from the fundamental trends in the internet? I was a fundamentalist without really knowing why. I decided that Yahoo seemed like a good investment. Its prospects seemed the brightest.

Shelby: Well, that was a smart move!

Wink: It turned out well. We had great markets between 1997 and 2000. I think the custodial account grew from $2,000 to $20,000. I remember that we paid for my second child's private school education with his yahoo profits. Those were good times for yahoo. You see moves like that in a raging Bull Market, particularly towards the end.

Wink: I promised my wife that I wouldn't miss the soccer games. So, I have time for one or two more questions. We can continue the interview next weekend, if you like.

Shelby: Yes, yes. That would be fine. Did you avoid the 2000 Crash?

Wink: No. I got caught up in the mania like everyone else. I remember times in early 2000 when I would read Forbes and Fortune magazine like a predator. I would write down all of the companies listed and note the rate of return for the previous 30 days. Then, I would invest in the stock with the highest rate of return for the past 30 days! It was pure momentum investing and destined for failure. Juniper Networks was one of those momentum stocks that I had a fling with.

Shelby: What lessons did you take away from the 2000 Crash?

Wink: Markets never go up forever. When people are euphoric, you have to get out of the market. You must force yourself out. A lot of real estate investors wished they had forced themselves out of the housing market in 2005.

Shelby: Well, thank you Wink for sharing your insights. Hopefully, we can finish up the interview next Saturday.

Wink: That would be fun. Ok, kids, let's go!

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