Reblog: The Best Defence is a Quality Business
The luckiest part of my investing career is that I’ve been old enough (37) to have emotionally invested through two bear markets (1999-2001 and 2008-2009) but still young enough to take advantage of the lessons learned.
From 1999-2001, while I was in college, I worked part-time for a brokerage firm. I was the “Marketing Administrator” which means I was the secretary who answered the phones. When the Dot Com bubble burst I heard from a large percentage of our 1,200 clients. They called our office in every emotional state you can imagine. And here I was an inexperienced 19 year old trying to calm them down. When I started the job I thought I wanted to be a broker. After the Dot Com experience, I knew I didn’t want to be a broker. Investing is hard enough dealing with your own emotions let alone the emotions of others. Investors can handle volatility as long as it’s only to the upside. In addition, I lost 80% of the capital my parents saved for me to use towards my college education.
In 2008, I had just made the leap to becoming a full-time investor. Simultaneously the markets went into freefall. Great timing right?
During the crisis I realised a few things.
First, The worst place to be invested during a crisis is in liquid, institutionally held microcaps (i.e. the large microcap segment). I found that when the economy or markets show signs of weakening, institutions take risk off. One of the first areas they look to liquidate is exposure to microcaps.