…A few years ago, I decided I wasn’t going to take on any more unreasonable, dangerous clients. I had too much responsibility to the households I was taking care of to allow a handful of lunatics distract me or goad me into investing behavior that I knew for a fact was stupid. Anyone who’s been in my line of work has likely reached a similar moment of clarity at some point. Or, at least, they will.
A small but vocal minority of wealthy people in this world believe that because they’ve been successful in their career, this success ought to automatically translate to any endeavor they get involved with (think about a retired major league baseball player opening a fine dining restaurant) and they view profits from speculation as something of an automatic, god-given right. I’ve ended up on phone calls or in meetings with quite a few of them over the years. I’ve learned that they are fearless about losses (because they can easily replace them), that they expect a super-sophisticated approach to investing and that they have outrageous ideas about what is possible in the markets.
The typical expectation of these types of investors is something along the lines of “I want all the gains of the hottest stocks out there, none of the losses of a general market decline, I want the ability to override your decisions if they look to be wrong and I want a running commentary from you about what you’re buying and selling every step of the way so that I can play along at home. Also, I’ll be logging into my account hourly from a mobile phone and checking you versus the benchmark nightly.”
If this is your bread-and-butter client, I wish you luck.
Professional money managers with experience and good instincts learn to Just Say No to these types of clients in advance…
–the Reformed Broker (source)
Yes, we have some unreasonable, dangerous members. Some of these members want a new trading idea every day, every hour, every minute…every second. I wonder if it’s because other websites churn and burn their customers. Maybe these customers are used to being treated this way? I look down and just shake my head. Some of our members feel as though if they are not doing something this very second that a service is not worth paying for. It is so tempting to give them what they want. But I’d rather have them leave then watch them lose money as a member of Valuentum.
Years ago when I watched CNBC, I used to wonder why the networks jump through hoops to keep 24/7 business news coverage. Live alerts, breaking news, after-hours action, fast money, and the attention-grabbing headlines are enough to make people’s heads spin. I used to think it was the networks that wanted it this way, but I’ve learned that it’s not. Consumers want action, excitement. They want to feel like “they’re in the game.” But action and excitement is not how you make money in the stock market. The faster you want it, the quicker you’ll lose your money. I have no desire to churn and burn our membership. And I’d rather lose half of my membership than half of my membership’s money. I’ll leave losing members’ money up to other websites and services. As our readership knows, our best ideas are always included in the Best Ideas portfolio and Dividend Growth portfolio, even though we comment on and analyze thousands of equities.
We’ve talked quite a bit about patience and perspective not only over longer periods of time with respect to Google (GOOG), but also over quarterly results in the example of Hasbro (HAS). Today, we have yet another example of the wisdom behind our teachings. If you judge a service by its biggest mistakes or biggest losers, then you judge Valuentum by Intuitive Surgical (ISRG). Even though nearly all (and I’m not exaggerating) of our portfolio ideas are exceeding the market’s performance, and the actively-managed portfolios are exceeding their goals, Intuitive Surgical has been a black-eye for our team.
Our average cost basis on Intuitive Surgical in the Best Ideas portfolio is just under $490 per share, and the company has faced significant pressure since the initial add price. It hit a low under $360 at one point. But did we panic? Nope. We outlined the ‘Curious Cases of Intuitive Surgical and Teva Pharma” in November of last year, and while Teva (TEVA), another idea that had not outperformed through the time of the publishing of that article, has now exceeded even our optimistic projections for this year’s price performance, Intuitive Surgical still was lagging. We made a process error in adding Intuitive Surgical to the portfolio too early (it was a 5 on the VBI), but our July 2013 email transaction alert had outlined our views clear as day for members:
We replenished a portion of our position in Intuitive Surgical in the portfolio of our Best Ideas Newsletter in anticipation of a price rebound following its disappointing quarterly performance recently. We continue to like the company’s recurring revenue model and view its fair value substantially higher than where shares are trading today. Specifically, we added…shares at $382.97 per share.
And then we received the news today about Intuitive Surgical. As ‘short’ attacks mounted and commentators piled on in recent months regarding concerns about the safety and cost of Intuitive Surgical’s revolutionary da Vinci, the FDA announced that it had cleared the introduction of a new da Vinci Xi Surgical System. The next-generation system will act to replace large-incision abdominal surgeries with a minimally-invasive approach. Though we liked that the FDA’s backing will alleviate growing concerns about safety, we’re even more excited that the new version has broader capabilities than prior generations of the da Vinci, offering a larger market opportunity for future expansion.
After months of back and forth on what fast-money traders may call a “battleground stock,” we’ve finally had our day. Intuitive Surgical is back to our cost basis! For our worst idea, this is fantastic. But it took patience, conviction, and market wisdom to get here – to turn what could have been a loser now into a potentially big winner. If we would have wanted outsize performance immediately, we would have missed the boat on Intuitive Surgical. Letting the Valuentum process run its course continues to be the right move, even if we’re a little early in establishing our positions. We’ve learned from our experience with Intuitive Surgical that we need to follow the Valuentum Buying Index process more closely, and we also acknowledge that the Valuentum Buying Index (in not signaling a ‘sell’ — a 1 or 2 on the VBI) also kept us involved with Intuitive Surgical. We continue to credit the methodology, and we’re very pleased for members involved in this controversial firm.
Thank you for trusting us!