Author: Gerry Sparrow, Sparrow Capital
Covestor models: Fundamental Growth, Hard and Soft Commodities
In this series, we ask Covestor managers: “What is the single most important lesson you’ve learned about being a successful investor, and how do you try to apply that today?”
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The single most important lesson I’ve learned about being a successful investor is discipline, which I learned first and foremost from my career in the Marine Corps.
In my investing career, I have developed certain rules and methodologies. For example, I assign each stock a score using a proprietary mix of fundamental, quantitative and technical factors. Over the years, I’ve learned the importance of remaining steadfast in my scoring methodology, despite market anomalies and my own emotions. 2008 and 2009 was a very challenging time in the markets, and emotionally for me. It would have been so easy to sell as the markets were bottoming, but I felt and continue to feel that I have access to the best research, so I remained disciplined and stayed in the markets through the recovery.
How do you apply that lesson in your current investing? What do you find are the challenges to applying it?
I’ve learned that during unsure times (for example when the fundamentals of a company are getting better but the stock price is going down), it’s important to reduce exposure. In the past, I’ve panicked and sold the whole position or let my biases (such as sunk costs) creep in and held the position hoping for the best.
In these situations now, I always reduce my exposure. I view it as a win-win. I’m still participating in the upside, but have reduced my risk on the downside.
I don’t beat myself up after making this decision. The market is very forgiving and offers many opportunities to recover.
