by Archie M. Richards, Jr., CFP^®
September 6, 2004

Dr. Richard Geist is a successful investor in small, low-priced stocks, I've talked with him at some length; he's a fine person. In his book, "Investor Therapy," he points out the characteristics that favor his kind of investing. Do you have these characteristics? They are as follows:

• You're curious. You wonder how things work and who makes them. Dr. Geist wonders, for example, "How do the paintings at museums get restored? Why do all baseball players but the pros use metal bats?" Do such questions come natural to you?

• You're patient. Evaluating a company's potential is a time-consuming process. You need to know about products, services, the industry, competitive advantages, facilities and plants, sales and marketing, new developments, income, costs, assets, liabilities, market valuation, institutional following (the less the better), and management. Accumulating all this takes time, effort, and organization. Among other things, you must enjoy studying and internalizing annual reports and other public documents.

• You're able to challenge your own beliefs. You can imagine in some detail what could go wrong.

• You have the personal skills to converse easily with management. You want to obtain as much information as possible, but you can't be openly challenging, because the conversation will quickly be brought to a close. You must see things from the executive's point of view. Your questions must be knowledgeable and empathetic. (Dr. Geist's book recounts a fascinating conversation displaying these skills.)

• You can formulate a sharply-defined, factual, detailed picture of a company, including the financials. But the quality of management is a different matter. Here, your judgments must be subjective.

• You feel like an outsider. You don't lack for friends or fail to function well in a group. But you don't quite fit in with the crowd. You value your own beliefs and judgments over those of your peers. The more other investors are certain that stock prices will fall, for example, the more inclined you are to buy. Message boards on the Internet intensify the herd instinct, especially at major turning points. If you read them at all, you're able to do so only as a lark and avoid taking the message boards seriously.

• You can handle uncertainty. You can act without knowing everything you'd like to know.

• Despite your intensive studies, many purchases will be unprofitable. You must be able to cut the chord to companies to which you previously made a commitment. Say the price of a stock you own is falling. A complete review reveals that the company is not achieving the objectives you expected. It should be sold. But doing this brings up feelings that you were wrong to buy the stock in the first place. Disregard the feelings. You weren't wrong. Perfection is impossible. Just move on.

• Investment losses produce anxiety. You have the capacity to know yourself. When you feel anxious, you don't focus on one piece of information, such as the price, and disregard the full picture you've carefully researched. You keep the entire picture in mind even when anxiety flares?

• Do you have the patience to wait for big moves? Major market moves often occur in short, unexpected bursts. Say you buy a stock at $2 a share. For three years, it goes nowhere. But in the fourth year, it quadruples to $8. Can you tolerate long delays in gratification? Rapid trading provides a dramatic feeling of being in control. But the feeling is deceptive. Rapid trading eventually results in losses. Hang in there and wait for the big moves.

It's an unusual person who possesses all of these characteristics. I myself do not. Reading a company's annual report, for example, puts me to sleep. Needless to say, I do not invest in individual stocks researched by me. For the most part, I use index funds.

But if you have the skills that Dr. Geist describes, you could be a highly successful investor. I hope you can, and I wish you good fortune.