When we first moved to Florida, my daughter flew down to spend the summer with us. We decided to all take a trip down to the Keys through the Everglades.
Now, I'd never driven the entire length of U.S. Highway 41, the Tamiami Trail. I was all about the idea.
Had a blast, too.
Along the way, we took the mandatory airboat ride into the Everglades; it was quite an experience.
Right about now would be a good time for me to confess to an admiration of and fascination with alligators, and although I see them all the time walking the dog here in Windermere, this trip was alligator heaven.
They were everywhere... and they were enormous.
Maybe you don't spend much time watching 'gators, but they're fairly opportunistic creatures. What I mean is, they don't "hunt" so much as wait around for something stupid. That is, stupid enough to come too close to an alligator. Then they pounce.
Naturally, they tend to eat a lot of smaller animals that wander by. But they'll occasionally take down bigger prey, like a deer, that makes a crucial mistake.
Of course, most of the time, if nothing comes close, they are content to float around the lake or take a nice nap in the sun.
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Being a successful investor is a lot like being an alligator.
Big killings are made, of course, but it's not by chasing short-term moves back and forth. The victory goes to the opportunistic individual who waits for the right situation to develop.
When prey is abundant on the ground, during periods like we saw from 2003 to 2005 and 2008 to 2010, I can pounce - become fully invested - in an instant. An extremely opportunistic, patient approach to the markets has built some of the biggest fortunes in the history of the world.
The alligator is pretty much the top of the food chain in the swamp, and those who use a value-centric opportunistic approach to investing their money are pretty much the top of the market food chain.
Take a good look at the Forbes list of the 400 wealthiest people in America.
You find lots of business builders like Bill Gates and Jeff Bezos. Peppered in among them you will find people like Carl Icahn, Warren Buffett, Philip Anschutz, Steven Schwarzman, Henry Kravis - some very patient, very wealthy alligators.
On the other hand, you know what you don't find?
Day traders, option traders who lack a head for math and statistics, or who work without a proven system, gold bugs, penny stock aficionados, and tip takers.
Alligators, they ain't.
They run back and forth looking for something to make them rich right now. And they don't often find it.
These pigeons, running back and forth for the disembodied hands tossing out bread crumbs and trash from on high, are the ones most likely to fall into the "fear and greed" trap, enthusiastically buying new highs and selling in a panic at new lows.
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Of course, alligators tend to eat pigeons when they get too excited and run too close. Value investing legends like John Templeton and Seth Klarman are two very well-fed alligators. They ate up the stocks the pigeons were selling (low) and then sold them back at several times their original purchase price.
Being a Market Alligator Is Simple - but Not Easy
It was so evident in late 2008 and 2009 that the stock market was a bargain. It was absolute heaven for an alligator - I mean, buyer - of last resort.
You could walk up and yell "Boo!" to any 10 regular investors, and six would probably just hand their stocks to you in a panic. It was like stocks were being given away.
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Real estate investment trusts (REITs) were priced like the world was ending and no one would ever need office space or an apartment again.
Walt Disney Co. (NYSE: DIS) traded for less than a third of the most pessimistic sum of the parts valuation I could devise. And I "devised" an awful lot, even going so far as to calculate the scrap value of the metal in its parks' rides and benches.
Community banks with otherwise healthy balance sheets were trading as if their doors would close in the mornings.
So, it was apparent to anyone with some knowledge of business valuation that this was an enormous bargain buying opportunity.
On the other hand, it was a gut-wrenchingly terrifying time to be a buyer.
The markets were teetering on what felt like the edge of oblivion. Hundred-year-old well-respected firms were closing.
Several well-known and well-respected hedge funds blew up, including a few runs by friends of mine. We all knew people that were losing their jobs and their homes.
I mean, it was a really scary time.
Me? I had to suppress the urge to toss my cookies a couple of times when I hit that "Buy" button. Most of the stocks I bought in late 2008 initially went down even more!
Scary. Not a lot of fun.
Fast forward a few years, and all those banks and REITs that we were buying back then made me a very well-fed, fat, and happy alligator basking in the Florida sun.
Now we come to the "alligator investing" secret...
In between the time I bought these stocks and the time I even began to consider selling, I did what most people simply cannot do...
I did nothing.
I didn't sell options against my stocks; I didn't trade around my position.
I didn't check the prices every minute, hour, or even day.
I did nothing. I made the smart choice to buy for pennies on the dollar, and I was content to sit back and let time and stocks work together to make me unreasonably huge piles of cash.
Charlie Munger, the No. 2 guy at Berkshire Hathaway Inc. (NYSE: BRK.A) once perfectly summed up how to invest like an alligator, saying, "It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities."
Stop chasing morsels back and forth all day. Just sit, wait, and watch. Dinner will come to you soon enough, and it will be a meal that can make you fat and happy for the rest of your life.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.