know thyself (or why an open kimono often leads to frustration)

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I am happy to announce a new contributor to the site- Christine Song. Below is Christine’s bio (which will also be under the about tab, under contributors), and her first article.

Christine Song – Global value investor with a passion for finding undervalued and underfollowed high quality small cap companies in which to invest.

Did I know from a young age that I wanted to be a stock picker? No. Did my grandfather give me a share of IBM on my 5th birthday and plant the seed to be an investor? No again. However one thing my mother taught me, from a young age, was the concept of intrinsic value versus market price, though she called it something else: “things going on sale.” Ever the skeptic, I protested: “I can’t wait, I need it now, they’ll be sold out.” However, she always waited and sure enough, things inevitably went on sale. From early youth, I was wired to be a value buyer.

It wasn’t until years later did I discover my life’s work — one that would marry my innate curiosity with my value bent. With a pit stop at Cornell University, my alma mater, to get an MBA, I focused on small cap value investing. I was drawn to small cap investing because my father was a small business owner, and I saw firsthand how small decisions have a big impact on operations. Through hard work, research and analysis, I knew I could find undercovered and undervalued stocks that were changing for the better. I am thrilled by the challenge of figuring out how business models work — and more importantly, how they will work. I use my quantitative skills while feeding my intellectual curiosity and passion for stockpicking. Everything I read, see or hear has implications for my craft, and I can’t think of another profession that, on a daily basis, would be as challenging and fulfilling.

it’s fall and back-to-school season and even though my student ID has long expired, i will use any occasion to buy books. now if you can still find a bricks-and-mortar bookstore in your neighborhood and wander into the Investing section, you’ll see rows of titles all claiming that within these lovely pages, you will learn The Way to make money in the stock market. famous investors, from warren buffet to peter lynch, have all laid out in simple 1-2-3 steps how they pick winning stocks. but with this open kimono of investing secrets, how come there are a whole lot of frustrated investors out there?

well, it’s not about uncovering investing “secrets” as they are there to be found in books, literally in black & white. the real discovery is about knowing yourself and your emotional makeup. if paying full price for say, a suit, makes you cringe, why would you feel comfortable paying up for a stock that’s trading at say, 40x PE? or if you get queasy carrying a balance on your credit card, how could you sleep at night with your savings invested in a company with little cash and lots of debt on the balance sheet?

the thing is, when you invest in stocks that go against your own personal spending philosophy, you’ll run for the exits at the first sign of  noise. how could you have conviction in something that goes against your own spending style? for reasons that may not be company specific, your stock may toss and turn with market volatility. and in the small cap space, the swings are even wilder. so if you don’t have faith in your investing style, that’s when emotions take over and we end up making bad emotion-based not fact-based decisions.

of course, in life, there are times when we wish we were a little more daring or a little less frugal. but the stock market is already a place driven by human emotion and when it comes to your money, the less drama the better. investing in the stock market is an extension of how you spend money in your day-to-day life, so know thyself and make sure the person paying for the groceries is the same person buying that stock.

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