Preparing for Disaster

Hi Everyone,

I don’t have the track record of some investors here (+170% ytd). My portfolio is unapologetically, mine, so next year I expect to do better than you all ;o) I’ll get to a year-end review later this month. Through the years, I shifted from a mix of investments to strictly stocks to concentrated stocks. In spite of years non-optimal strategies, I exceeded market returns by a wide margin for the 24 years preceding this year. This is because I continue to learn and I am tenacious.

After this wonderful year, it’s important to determine what will keep us invested through disasters. Saul reminds me a little of Peter Lynch, the leading mutual fund manager of the Magellan Fund from 1977 – 1990. During that time, Magellan returned an average of 29% a year, but its average investor LOST MONEY!!! Why? When Magellan’s price dropped, they sold. When Magellan’s price jumped, they bought in. During that time, most people embraced the fear mongering that has permeated the media FOREVER. An interesting story related to Lynch’s investors is linked below (though I don’t advocate working with an “investment professional”).…

During the 90’s, flighty investment behavior continued, even though investment information was more widely available than ever before. The eminent market commentator of the time commented on the jitteriness of individual investors.

In the 1950’s, the stock market had bulls and bears. In the 1990’s, all we have are sheep.
Louis Rukeyser

Today, as GauchoRico, Saul, and others have pointed out, growth stocks don’t go straight up. When dark days come, it’s important to remember how we invest in growth stocks is as important as what we invest in. Here’s some points that have been brought up before, but I think are good reminders so that we continue to benefit from long-term compounding.

  1. You’re not a growth stock INVESTOR unless you are willing weather a 40% drop, and are still willing to stay the course.

David Gardner defines an investor as someone will to stick with investments for long term growth, as opposed to traders, who try to leverage daily swings in a stock.

  1. We need our own rules that our investments live or die by.

Take a look at the knowledge base or portfolio reviews to get a sense for this. Codify your rules for YOU.

  1. Investment money and living money: never the twain shall meet.

Segregation allows us not to panic and sell because we don’t have the money needed for life during a stock market disaster.

  1. Perform your own due diligence.

“If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment.”
— Marcus Aurelius

The protection from disaster is an understanding of your investments. Why do you like them? What would cause them to succeed? What would cause them to fail? Has anything changed with them during a market crash? How will you manage them?

If you:

  1. Just experienced the greatest returns of your life, and have never experienced a downturn.
  2. Don’t understand your investments.
  3. If you are currently stressed out about the market highs.

Take these ideas to heart. You’ll feel better when tough times come.




You’re not a growth stock INVESTOR unless you are willing weather a 40% drop, and are still willing to stay the course.

Who cares? I really don’t understand the appeal of labels, nor the implied superiority of one style over another.

But, since you obviously care, then remember that what we do here isn’t “growth stock investing”, it’s “growth company investing.”

When the stock of a company in which we’re invested drops a lot, we look at the company’s business to decide whether to sell, hold or buy more.

Two recent examples:
Zoom dropped from $568 to $376. Most people here didn’t sell, and some even added. The consensus was that the business hadn’t changed.

Fastly dropped from $128 to $64. Most people here sold before it got that low as they felt that company management wasn’t up to snuff and lost confidence in them.

We don’t say for ZM we were growth stock investors while for Fastly we were short-term traders. Labels don’t help. We look at businesses - results and how they’re being run. As Saul has pointed out many times, staying in a company waiting for a rebound could be missing opportunities in other companies.


Great Post. Here a few things I do that help keep me sane:

  1. I keep my focus on my companies. If I feel anxious, I go back to my spreadsheet, which tracks all my numbers and notes, and reassure myself that my company is performing well.

  2. Turn off the noise! You don’t need to read every seeking alpha article, watch every cnbc bit, or youtube riff on your company. Stick to primary sources and a few trusted places (Saul’s board, stocknovice’s blog, motley fool articles, etc).

  3. Turn off the noise part deux! Stay away from the mainstream financial media as much as you can. Otherwise you’ll be constantly running into fear and doomsday predictions that are largely click-bait.

  4. Study history. Note the bubbles, speculation, nonsense, mergerfests, etc. Great companies do well no matter the times. CocaCola was selling for around 40 bucks a share in 1932, by 1936 it was up to 180 a share (if memory serves). Phil Fisher was wrestling with many of the same challenges we are dealing with back in the 50’s and 60’s. Things don’t change, we do.

  5. Be flexible, roll with the times. Some investors are stuck in the past. Saul reminds us not to be. EV/S doesn’t tell us much about our SaaS companies. PEG ratio may have worked for Peter Lynch, but not in the “age of accelerations” that we currently live in, etc. Our mental models must be flexible as new types of businesses and technologies emerge. Optionality and a Moat with a founder led visionary usually equals = Buy


To be clear, I agree with you about understanding the business and deciding what to do based on business conditions or better opportunities. My point is that when you like your growth stocks (or if it makes you feel better to refer to these as “growth companies”) and you get hit with sector rotation or just a down period in the market, that you stick to your guns.

My comment about 40% is more about not selling out of all your growth companies and putting all of your money into cash because you cannot stand losses due to an overall drop in the market.



I personally consider an investor one who buys stock or other securities with the hope the intrinsic value of the asset will rise while a trader is just trying to sell someone essentially the same thing at a different time but at a higher price.

I do take exception to the part about an average investor trailing the index by randomly investing. Theoretically, a random sample of the index invested using the same methods (i.e. Market cap weighted) should match the index on average. It’s the emotional or speculative aspect (timing or otherwise failing to follow the system) that causes underperformance.