Five year summary of PDCO stock price. From 2012 to 2018

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Noam Ganel is the Managing Director of Pen & Paper, a value-oriented stock research publication. Subscriptions are now available. He also serves as  Vice President in Capital Markets at Silvergate Bank and holds the Chartered Financial Analyst (CFA) credential.

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Bury your head in the sand

Why I decided to call Charles Schwab for market orders

May 4, 2019

"We face danger whenever information growth outpaces our understanding of how to process it," wrote Nate Silver in The Signal and the Noise. "The last forty years of human history demonstrate that it can still take a long time to translate information into useful knowledge and that if we are not careful, we may take a step back in the meantime."

Indeed, I had taken a step back this week and wanted to bury my head in the sand. This was the result of the movements in my stock portfolio.

I was overwhelmed with information. Companies reported annual earnings this week - which set an immediate price reaction by Mr. Market. Frontier Communication, my largest position, and one that represents almost 10% of my stock portfolio, reported higher-than-expected revenue which translated to a $4,000 increase in unrecognized market gain. Mr. Market also welcomed news from management of Stericyle, a position I began in January, which described began its business transformation. The reported goods news resulted in an increase of $1,500 in recognized market gain.

But the stock of Oprah Winfrey's Weight Watchers (which I bought in January) tumbled by 27%. The 2018 earnings per share of over $3 per share were abnormally high noted management. Management also lowered the 2019 earnings per share forecast to be about a dollar per share. Management reported on a gloomy outlook (some would say realistic) given "competitive pressures." and the market was infuriated. The dreary news resulted in $4,000 unrecognized market loss.

Management of Victoria’s Secret, a position I started last year, reported to shareholders that it will close 53 Victoria's Secret stores this year. L Brands stock fell by 10% shortly after, to $25 from $28, a $2,000 unrecognized market loss for me.

The unrealized market gains were offset by unrealized market losses. But I was not dispassionate about the whole thing. On days my portfolio value was elevated by 30% gains, I felt great. I happily talked to everyone and even showed a somewhat, jovial stride.

Yet on days my portfolio was is down 30%, I shut the my offie's door. And instead of walking outside, admiring the beauty of San Diego weather, I made repeated trips to the break room to fill with coffee my empty cup. The emotional toll from market fluctuations was real and unpleasant.

The vagaries of Mr. Market

The emotional toll has a real emotional toll but hardly anyone in finance or in business talks about it. In The Psychological Price of Entrepreneurship, Jessica Bruder writes of "entrepreneurs who have begun speaking out about their internal struggles in an attempt to combat the stigma of depression and anxiety that makes it hard for sufferers to seek help."  

Yet Wall Street has not caught up with Silicon Valley. On Wall Street, you don't talk about emotions. "And if you do," said a Wall Street veteran who asked to remain anonymous, "It's a sign of weakness."

Over the weekend, after markets had closed, I realized how idiotic my behavior was. To track daily or even weekly the market value of my stock portfolio was sill. I had no plans to sell stocks so what investors were willing to buy the stocks for was meaningless. I manage my own money and no investors I need to report to on the portfolio value. And I never buy stocks on margin so there was no risk of a margin call.

Calling Charles Schwab

A few years ago I read in a book by Nassim Taleb that if I was to daily check the price movement of the stock portfolio, by the nature of statistics, the amount of losses would be greater than the gains.

In Fooled by Randomness, he wrote:

"A minute by minute examination of a portfolio means that each day you will have 21 pleasurable minutes against 239 unpleasurable minutes, amounting to 60,688 and 60,271, respectively, per year." 

Yet knowing that something is harmful and doing something about it is not the same. Hence, my solution going forward is to call Charles Schwab for market orders.

The problem with trading over the Internet is that it forces you to log into your brokerage account. That in turn forces you to see the price movement of your stock portfolio. And if that's not enough, all brokerage platforms add a visual cue. Just in case you don't remember what was your cost basis, they color the gains in shiny green and losses in bright red.

***  
In Jewish philosophy it is said that where penitents stand, even the wholly righteous do not stand. I bring this sentence of wisdom as a means of an excuse. I knew that watching price movements was wrong. Great investors, from Warren Buffett and Guy Spier to Nassim Taleb, commented on this issue in the past. But I had to feel for myself the emotional distress in the present to finally do something about it. Sometimes, lessons are learned only by experience.