Gary Mishuris, the chief investment officer at Boston-based Silver Ring Value Partners, recently provided a public service by detailing a horrendous, early-career market mistake that provides current investors with valuable lessons.
With the ink on his Massachusetts Institute of Technology diplomas still drying, Mr. Mishuris began his working life as an analyst at Fidelity Investments. The position involved uncovering investment opportunities and convincing the company’s mutual fund managers to buy them.
The analyst became enamoured with a small plastics conglomerate named PolyOne, led a by a CEO from Harvard Business School. Mr. Mishuris had assessed the business plan, ‘grilled the chief financial officer’ on the balance sheet, visited factories and spoken with competitors. He was convinced the stock was about to shoot higher and a number of fund managers added the company to their portfolios.
In late 2002, PolyOne fell 50 per cent in one day after suspending its dividend and guiding profits lower. He writes,
“I felt physically sick. As you read these words you might intellectually relate to what I was going through, but I can assure you that unless you have experienced a similar situation you have no visceral idea how I felt. I literally wanted to crawl under my desk and cry.”
Mr. Mishuris listed five painful lessons he learned from the mistake that almost killed his career before it got started.
One, never rely on management’s projections – use actual financial evidence. Two, the quality of the business should be rated before breaking down all the accounting.
The third lesson caught my attention most, “Don’t get overconfident because you know a lot of details about the business – it’s the few big things that matter.” Identifying the main drivers of growth is more important than knowing every footnote in the annual report.
The fourth lesson was to imagine scenarios where things could go wrong for the company and judge how likely they are, and the fifth is not to trust any market profession without a number of years of experience.
Mr. Mishuris’ experience is also a good example of why it’s good to fail early. Initial investing success can lead quickly to overconfidence that eventually results in big losses. As the famous quote by author Humphrey Neill goes, and this could be the final lesson, “Don’t confuse brains with a bull market.”
–Scott Barlow, Globe and Mail market strategist
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Compiled by Gillian Livingston