Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
I've been seeing double lately. No, not from taking blows to the head in the boxing ring and not because I've been hitting the sauce (I don't drink).
Rather, it's the result of being around twins a whole lot more than ever before.
First, there's Matthew and Michael, identical twins of Daruma COO David Gerber. These two 13-year olds, though they like swapping places from time to time, are otherwise so suspiciously well-behaved that I wonder what they put in the water in Bergen County, NJ.
In contrast, my great nieces Gwen and Ellery are fraternal twins and conclusive proof that nature trumps nurture every time. One can recite Shakespeare and the other grunts like a caveman; one will conquer through charm and the other through brute force. In short, they squabble constantly.
All this twin action has brought me back to elementary school, remembering two classmates who were not only identical twins but mirror image twins. While technically "identical," one was right-handed and the other was left-handed. As a result, watching them at the blackboard in matching red plaid school uniforms was like having a mirror image hallucination.
But it's not just children - lately I'm seeing twins (mirror image ones, no less) in my business as well. In this case, it has to do with our buy and sell execution.
Here's what I mean...
As you may recall, our last newsletter introduced Daruma's "investment process auditor" Dan S. My hope was that Dan could show us where we had spinach in our investment process teeth. (Trust me, NO investment firm is 100% spinach-free, no matter what their marketing bilge says.)
So what did Dan discover? First the good news: He confirmed what the behavioral finance mavens at Cabot Research quantified - that we add a lot of value through our sell discipline.
In particular, we did a great job selling stocks that had been big winners after there was a sharp break in the price (of the sort that suggested something big had changed in the company's prospects). We were right not to hang on, since these stocks went on to underperform. In short, we didn't fall in love with our big winners, and knew trouble when we saw it.
Now for the bad news and my tendency of late to see twins. Dan revealed that our population of losers included a cluster of good companies coming off of great stock price runs that we bought when some kind of trouble made them cheaper.
I was stunned.
"Do you mean to tell me that from a place of knowledge we sell the first break, but sometimes from a place of ignorance we buy the first break?" I asked. "Yup. Pretty much," said Dan.
