Forge Psychology: Value Investor Turned Day Trader

I like to think I'm pretty well wired for value investing. A natural inclination to go against the crowd and an absence of emotion tend to combine well.

But I have a couple of idiosyncrasies that cost us from time to time.

First, I don't like pinching other people's ideas. That's dumb – other people pinch plenty of mine. But I just don't get the same enjoyment out of buying someone else's idea as I do from adding our own propriety idea to the portfolio. So I tend to shy away from them.

Second, not all profits are equal.

This is the way it is supposed to work. We find an unloved idea. We do a few weeks research. We buy the stock and we sit there and wait for the value to become evident to everyone else. We argue with management if necessary. We get lawyers involved if we have to. And then three years down the track we reap the profits and sit back content with the hard work we've done.

So what happens if a stock doubles or triples within three weeks of owning it?

We sell it, of course. The stock is no longer cheap and we just realised what we hoped to realise over three years in the space of a few weeks. What's wrong with that?

Nothing, of course. We've made money and should be happy. But I just don't get the same satisfaction out of the short profit. It's a bit like a tennis shot that hits the net and drops just onto my opponent's side of the court. I won the point, but I don't feel like I deserved it.

The stock that made me think about this is Forge Group. In December we bought it and sold it twice. The average holding duration was about a week and we added 1.7% to the Value Fund's net asset value.

Profitable for sure. But hardly traditional value investing is it?

*We've written a few pages on mining services for the December Quarterly Report. It will be available next week.

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