Most PBRG readers know Tom Dyson is our founder and publisher. What many people may not know is Tom has taken an extraordinary path to reach this role…
Over the next days and weeks in the Daily, I’ll “pull back the curtain” to reveal some key insights about Tom and his unique view of the markets.
In the piece below, Tom answers an important question from one of our Palm Beach staffers…
What’s the single most important investing lesson you’ve learned and why?
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From Tom Dyson, publisher, Palm Beach Research Group: There are so many. Being contrarian is huge. Compounding is huge. But I’m going to go with cutting losses. Letting profits run.
I learned this lesson with Bright Station…
Back in 2000, after the Nasdaq bubble burst, I fell in love with a stock called Bright Station. I think it had some technology that helped search engines. It was probably competing with Google.
I discovered the company after my mother worked with its CEO on a job. She thought he seemed successful. (In a press conference much later on, he wore a Mickey Mouse tie.)
The stock just kept falling. Every time it did, I thought it was a greater deal. I kept buying more. I remember one day, it had a big drop, and I ran to a phone box to place a trade… I was in such a hurry to buy the stock. Of course, it was even cheaper the next day. I followed the Internet message boards and all the gossip on the company.
When it fell close to zero, another company bought its assets for peanuts.
I don’t remember exactly how much I lost… probably about $15,000. It was a lot of money—all my money—back then. (My mother was invested in it, too.)
But it taught me a very important lesson: Never average down.
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I will never buy more of a stock as it gets cheaper (like I did with Bright Station). Since then, I’ve always cut my losers very fast. Obsessively fast.
I always know when I’m going to sell… before I buy.
Also, I average up. It’s the opposite of what I did with Bright Station. When my investment goes up, I buy more. Emotionally, this is difficult for me, because I’m getting a worse “deal” than before, and I’m cheap. I love discounts. But I’ve programmed myself to do it.
A cool thing about these big investment lessons is they apply to life, too…
- I’m always cutting costs and letting profits run in my personal life. I do more of what’s working and less of what’s not. And it always pays. Like with hiring, for example. Or with books and movies. Or when I go somewhere not fun with my kids.
- It’s the same with being contrarian. If you do what the crowd does, you’ll only ever get average results. When I had to go to Disney World, I figured out which day of the year had the smallest crowd. I’m always thinking this way. It’s become an automatic response.
- Compounding applies to life, too. I’ve noticed experience and knowledge compound… big time. The more you do something, the better you get at it—and the faster you get better at it. There’s a good book about this called Talent Is Overrated.
Reeves’ Note: You can learn a lot by observing and listening to successful people like Tom. Stay tuned for more personal insights from him in future Daily issues.
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