I hope everyone had a happy new year and took some time to celebrate! For us investors these past few months haven’t been too wonderful, so finding reasons to celebrate is always nice. As anyone following the market knows, we have seen a precipitous drop in prices. Everything from tech stocks to blue chips have seen a significant fall. From the market highs in October, prices now sit about 20% lower. This has given us a reminder that prices often fall much faster than they rise. Watching your portfolio drop by multiple percentage points day after day can truly leave you breathless. Volatility however is a price we must pay for satisfactory results.

This drop has certainly not left me unscathed. My personal accounts have taken a beating and my 10K portfolio now sits just around $9,000.00. I clearly chose the exact wrong time to start a portfolio. I made a rookie mistake and rushed into my investments, instead of letting ripe opportunities arise. Let it be known that I am far from a perfect investor. This is merely one mistake of the many I am sure to make. I only hope that in the aggregate, my winners will outshine my losers and overall my portfolio will beat the market in the long term.

Let me make it clear, no one likes losing money. I hate losing money as much as anyone, probably even more than most. It pains me to watch my hard earned money wash away. I could have had a lot more fun blowing $1,000.00 than losing it in stocks, but that is the risk us investors take.  In the short run anything could happen. There are infinite possibilities, but we play a game of probability. In the long run, measured over many years not days or even months the market has grown and grown enormously. I therefore choose to let the numbers dictate my investing philosophy. Pick great companies and allow time and compounding to increase my wealth.

The ability to control your emotions is probably the most important attribute an investor can have. What is most important is not intelligence, nor financial modeling, but the ability to remain calm and think rationally.  Never one to mince his words, Charlie Munger stated “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments.” The stomach is often what makes or breaks an investor, not the brain.

Market volatility also happens to provide opportunities to buy at a discount. If you have a long investing horizon, you should actually root for the market to fall in the short term. It allows you to accumulate shares of great companies at lower prices, that in 20-30 years will be worth far more. If you are a net buyer of stocks, falling prices are your friend not your enemy. Another thing to consider is that not only can you buy stocks at cheaper prices, so too can the companies you invest in. If you invest into companies with high free cash flow, they can use that cash to buyback their own stock or even make investments into other companies at reduced prices.

I used this drop in the market to enter two more positions and effectively fully commit my entire 10K portfolio. I have $150 leftover that I’m saving to use on a rainy day. Over time I will also accumulate money in the form of dividends and I’m sure there will be some turnover in the portfolio as certain companies do not perform according to my investment thesis. Therefore, I doubt these are the final decisions I make.

APH- I purchased 9 shares of Amphenol at $82.97 for a total of $746.73. Amphenol is a neat company which sells fiber optic connectors and other such products to all kinds of industries ranging from hospitals to aerospace. They grow their earnings each and every year and they generate lots of free cash flow. They sit around a 20 P/E which is still on the rather high end, but at a level I am comfortable with given the quality of the business.

MKL- I purchased 1 share of Markel for $1,029.96. Often referred to as a baby Berkshire, I am happy to be an owner of such a high caliber business. Much like Berkshire, Markel operates primarily as a specialty insurer and then reinvests the float into all kinds of other vehicles. A company of this magnitude rarely goes on sale, but such an occasion recently occurred. One of the small subsidiaries they own got in trouble with regulators for misrepresentation of loss reserves. I believe this is a one time small issue, and not endemic of the entire company. This caused a great drop in price, that put Markel under 1.5X Price/Book value. The company almost never trades at such a level, so I pulled the trigger on a company I will be happy to own forever.

As always, thanks for reading! Questions are encouraged and feel free to comment how your portfolio has performed. Remember to follow along and join the email list on the side.