There’s a saying, “The biggest risk is not taking risk” that applies to our investing youth today. Headlines everywhere are talking about how twenty-somethings are shunning stocks and staying with terrible CDs. This is a major mistake that’s going to prevent Generation Text from ever breaking the chains of their day jobs. What they don’t realize is now is the time to take the most risks in their life. If they fail, they have more time to recover than they ever will. Nothing is more valuable than time.
This philosophy is why I like to start the year with my most risky investments first. I’m younger in January than I will be in December. I also like to pretend I’m a professional hedge fund manager, and have to hit a yearly target. I have an entire year for my thesis to evolve. If one of my risky investments tank, I have more time to adjust accordingly before the year ends.
The majority of people chase performance. They think the stock that did the best in 2010 will also do well in 2011. Though this is true for the best growth stories in their early stages, overall the facts prove this is wrong. Peter Lynch, one of the greatest investors of all time, beat Warren Buffet from 1977-1990 with a 30% annual return running the Fidelity Magellan fund. To understand what amazing performance this is, $30,000 becomes a million in just 13 years when it compounds at 30% (and yet it’s legal for credit cards to charge this rate). Instead of buying that SUV, you could take a flux capacitor, give the money to Peter, and come back a millionaire. Simple enough, right? How lucky his clients must have been to be in the right place at the right time? Unfortunately, no! The majority of his clients tried to time him and pulled their money out of the fund after a bad year and poured money in after a good year. They missed the huge gains and got the big losses. Because of this, they actually lost to the market.
I don’t chase performance, I do the opposite. I look at my biggest losers of 2010, find out why they are losing, and see if my investing thesis still holds. If it does, I like the stock more because it’s cheaper. That’s exactly the case with National Bank Of Greece (NBG), and that’s why I doubled-down. My investing thesis on NBG hasn’t changed and it’s almost been a year. I still don’t think Greece is going to default, and agree with Dr. Bob Froehlich position on the PIIGS. The French and Germans won’t allow defaults because everyone would fall together.
I believe Greece will turn between 2012-2014 because of this data and will sell the position after it’s recovered. This isn’t an investment, it’s a trade.
This is a volatile stock. I bought more of NBG on January 6th when it hit its 52 week low. Thanks to DCA (Dollar Cost Averaging), it turned my 38% loss to a 19% loss. It dropped another 8%, only to rally 16% from its bottom in just three days because of a successful Porteguese bond auction. Portugal is the P in PIIGS, and the market figures if people are still buying their bonds then they won’t need a bailout. NBG is cheap because the market thinks of the PIIGS the same way it did about American banks two years ago.
This is an extremely risky stock. Though buying a stock on its way down can be a great way to lose money, I only need to find one Ford (450% gain) for every four bankruptcies to break even. Those are great odds! NBG still only represents 7% of my portfolio. Enough to where it has already helped boost my annual return by 4% in the past 3 days, but it won’t kill me if they default.
If a stock goes to zero you want it to break your leg, not put you in a coma.
Monty
Greedy When Fearful 
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