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Last week I taught my eight-year-old how to ride a bike. It was difficult because, like me, she is uncoordinated. Although I guess that wasn’t the hard part. It’s not hard to ride a bike. Every kid, including mine, has the skill set. It’s just pedalling. The hard part is that first leap of faith when you push off and the bike wobbles and you have to know if you just start pedalling you’ll do fine. It’s sweet, but also heartbreaking because I watched her again and again start to wobble and either fall or put down a foot to stop herself without trying to pedal, even though she clearly could have. She would cry “I’m so stupid!” and it was heartbreaking because she would do it over and over.
My first investment in the stock market was almost 20 years ago today. I was a poor college student but had just come into a little money (thank you World Open Philadelphia 1987) and decided to put some of it into the market. I had just read Boone, T. Boone Picken’s autobiography, and decided to put my money with the master. I bought stock in Mesa Petroleum, his oil company. The very next day – October 19, 1987 – the stock market crashed. I don’t even know what happened to those shares. I never looked at that account again. But presumably they went to zero the same way Mesa did. I was stupid and I felt bad about it.
And I was stupid many, many times after. Perhaps the time I was most frustrated with myself was in the dotcom boom and bust. I love the internet and I have lost and made a few fortunes with it, but in the summer of 2000 I decided to lose more money than any human being should be allowed to lose in such a short period of time. I decided I wouldn’t let it happen again. After that, the stock market became a little more like riding a bike. First off, I diversify. I don’t like to put more than 2-3 per cent of equity in any one position. I also like to buy after people smarter than me have done so. A lot of people are smarter than me: CEOs who buy their own stock, Warren Buffett and even my old nemesis T. Boone Pickens. I like to buy stocks that are largely economy-independent, or at least supported by huge demographic trends. If China is buying tons of commodities and Buffett is buying up 25 per cent of a railway such as Burlington Northern because he sees it as the way commodities will get from the Midwest to the west coast before being shipped to China, then it’s probably a pretty good buy. Here are some other buys I mentioned last Friday on CNBC’s On the Money show:
Stericycle: whenever you throw out your dirty medical needles, it is there to pick them up. The company has had 20 per cent earnings and revenue growth over the past 12 months and a director just bought over $1m worth of the stock. This is a great backdoor play on the ageing of baby boomers. It is sad to say but the need for disposal of medical waste is only going to grow and you’re going to want to hire the experts to do it.
OYO Geospace: I’m as jealous of the Texas wildcatters in the 50s as I am of the search engine guys from the early 90s. You could dig for 30ft on random ground in Texas and still hit oil. Now you can’t do that. But with oil at $80 a barrel it’s now worth looking for it in unusual places, like the bottom of the ocean. OYO Geospace is the leader here. And with the CEO buying $1.5m worth of the stock he’s clearly also a believer. Not only that, but the company’s products are also used to detect earthquakes. Clearly economy-independent.
CAM Commerce Solutions: I can quote statistics about online commerce but I don’t really need to. We all know every company is moving as much of its transactional business online as possible. The fastest-growing e-commerce company right now is probably JC Penney. It just finished installing internet kiosks in 35,000 locations, and e-commerce sales recently topped $1bn over the prior 12 months. CAM Commerce is a leader in integrating online and offline. It has had 85 per cent earnings growth over the past year and the CEO just bought $1m worth of stock.
American Eagle Outfitters: I wrote about the retailer last week, and what happened in the interim? The chairman of the company bought $20m worth of the stock. And the company still trades for just 6.5 times earnings before interest, taxes, depreciation and amortisation.
Meanwhile, my kid finally got it. She pushed herself off and began to pedal and just kept going. When she stopped she jumped off the bike and yelled, “I’m a hero!” But I always worry, and I just hope the next time she tries, she remembers how to do it.