Wednesday, September 13th, 2006
Profile of a Philip Fisher disciple
One of my favorite features of investors.com, the web site of Investors Business Daily, was the profiles they ran of private investors. I’m not sure they’re running them in the paper and I can’t see them on the site any more. But I decided to introduce reader profiles to Global Growth Investor so individual investors can tell their own stories and pass on lessons learnt and tips picked up.
My first interview is with Houston-based Benjamin Tang who is a Philip Fisher devotee and has some great insights into buy-and-hold growth investing. He sat tight during the recent market correction and is now eyeing off beaten down tech stocks.
How did you get interested in trading?
I didn’t start my professional career in the investment business. I have a BS in electrical engineering and an MBA. The stock market has always intrigued me, but I never thought that it was the “proper” way to make a living. When I got out of business school, I wanted to become a ‘captain of industry’ and to build something . . . that’s probably my engineering side doing the thinking. As I got older and started to realize that corporate America just wasn’t for me, I re-examined my life and came to the conclusion that I just needed to do what I love. Others had told me this before, but I was too young and immature to understand this simple fact. I searched and got a job as an equity analyst with a mid-size buy-side firm.
What kind of an investor are you?
I am largely a buy and hold guy, but I do quite a bit of option writings as well. I also do some opportunistic trading at times.
Have you tried any other types of investment strategies?
Yes, I tried almost all of them during my inexperienced days, but I simply wasn’t very good at them.
Apart from loving the game, why do you invest in stocks?
To build wealth. I actually enjoy the investing process as much as the end results (only if they are profitable, of course).
What is the toughest thing about investing?
Patience.
How do you pick stocks?
I read tons of industry magazines and industry-specific websites. I also talk to friends and ex-colleagues about the industries they are in. I guess it is similar to the scuttlebutt method that (Philip) Fisher talked about in his book.
I rarely get great ideas from analyst reports. I read analyst reports mainly to get a feeling for what the consensus view is out there on the street. If my view is divergent from the street view, I will do more research to make sure that I didn’t miss anything. I will also invest in companies that have been unfairly punished due to excessive negative news flows.
The top attributes that I look for in a company are (not in any particular order): industry trend, potential market size, management, balance sheet, and free cash flows.
Tell us about some of your big winners – and big losers…
Let’s talk about my mistakes first. I will give you one long and one short mistake.
I bought AT&T close to the market top in 2000. I actually bought most of my tech holdings in the 1990s before 1998. I simply got caught up in all the frenzy and thought it was “really” different this time around. I stayed clear of the speculative internet names but I really liked AT&T’s strategic direction of bundling all the services (voice, cable, wireless, broadband) under one corporate brand (currently known as quadruple play). Plus AT&T was ‘relatively’ cheap. AT&T was not my biggest loser, but I consider it my biggest mistake since I went against my own judgments and got caught up in the madness (more on this point later).
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My other big mistake was shorting Netflix. There was no doubt in my mind that Netflix was overvalued (and still is!). Netflix was my first major short position and I allowed my ego to cloud my judgment. I doubled my Netflix short position as Netflix went higher. And I did it twice!!! I closed the position at a big loss because I couldn’t take the pain any more. Netflix eventually tanked as much as 60% below my average short price before recovering. Lessons learned: (1) Don’t short a stock on valuation alone. (2) Ego is a lot more expensive than money. (3) I am a lousy short. (4) The market can stay irrational longer than I can stay solvent.
One of my big winners was buying Philip Morris (aka Altria) in late 1999 and early 2000. Philip Morris was getting hammered at the time because of all the lawsuits and the tech buying frenzies. It was yielding something like 10% in dividends when I bought it. As usual, Philip Morris promptly dropped 15% after I bought it, and everyone was telling me what a mistake it was, especially with all the tech stocks going up 20 to 30% a month. I held on to my shares. However, instead of buying more Philip Morris, I bought AT&T. That’s why I consider buying AT&T as one of my biggest investment mistakes – I knew the tech sector was significantly overvalued and Philip Morris was cheap, and I still made the wrong decision.
Philip Fisher has had a major influence on your trading. What have you found most helpful in his books?
The funny thing about the Common Stocks and Uncommon Profits and Other Writings book is that it did absolutely nothing to me when I first read it in business school. My first thought at the time was – “what kind of investment book is this? There are no numbers and equations in this stupid book at all!” Boy, was I wrong!!! I read the book again in 2000 and it hit me like a tsunami. I have since re-read the book no less than a dozen times, and I get something different out of it each time.
The most helpful things in his book are: (1) Always think long term and think independently. (2) Buy the company, not the stock. (3) Stay within the circle of your competence. (4) Do not over-diversify (5) Patience.
Apart from Fisher’s Common Stocks, Uncommon Profits, what other books have you learnt a lot from?
Right off the top of my head: The Intelligent Investor, When Genius Failed, One Up on Wall Street, The Battle for Investment Survival, Running Money, Good to Great, The HP Way, Reminiscences of a Stock Operator, and Where Are the Customers’ Yachts?
What software, brokers and other tools do you use?
I don’t use any special software. I have a couple of simple spreadsheet models that help me do DCF analysis. I use several brokers, but eTrade is my main broker.
How did you handle the recent market sell-off?
I mainly just sat tight. I did move my defensive positions into some quality beaten-down stocks, mostly in tech. I also continue to write put options as opportunities present themselves.
Finally, what stocks do you like at the moment?
In technology, I like Palm Inc (PALM), Audible Inc (ADBL), Intel Corp (INTC), 3Com Corp (COMS), IBM (IBM), PMC-Sierra (PMCS) and Xilinx (XLNX).
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