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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • Radical Selectivity And Sam Houston's Bad Year 12 comments
    Aug 18, 2013 12:10 PM

    Sam Houston was having a bad year.

    If there had been opinion polls in March of 1836, General Sam Houston would have polled extremely poorly among his cold, wet, hungry, and tired army. Six-thousand Mexicans had massacred the Texans holed up in the Alamo Mission. Houston's army at Gonzalez numbered only 374. They lacked adequate training, equipment, or rations. The weather was lousy.

    With the Mexican army of General Antonio Lopez de Santa Anna in pursuit, the Texans slogged through deep mud and torrential rain for four straight days. Santa Anna murdered another 400 Texans at Goliad. These 400 were volunteer Texas militia who had made the mistake of trusting the Mexicans to honor their surrender. Along the way, Houston picked up an additional 730 men.

    Throughout the month, Houston retreated to LaGrange, then retreated to Columbus, and then continued retreating towards the Gulf of Mexico. By the end of the month, his army was so sick of retreating, that they began to refuse orders to retreat further. Since they wouldn't retreat, Houston figured that he might as well train them. They received their first efforts at organized drilling. In early April, he retreated across the Brazos river. At this point, the army totaled about 1,500.

    On the afternoon of April 21, 1836, Santa Anna had stretched his supply lines, divided his forces, and was comfortable enough to settle down for a siesta at San Jacinto. He was so confident that he didn't bother with posting sentries or skirmishers. Houston, who didn't fight at Gonzalez, LaGrange, or Columbus was ready to do what neither army was expecting - he was ready to fight.

    The Texans awoke the Mexicans to a battle that was almost over before it started. Eighteen minutes later, 700 Mexicans were killed, 208 wounded, and 730 surrendered (including Santa Anna) at a cost of six Texans killed and thirteen wounded, including Houston who was shot through the ankle.

    Texas had won its freedom.

    Houston -- an uneducated, hard drinking run away raised by Cherokee Indians -- had few natural advantages going for him. But he picked his spots. He increased his advantages while waiting for the defining moment to act. In the capital markets, there are many times when one feels the pressure to act prematurely. It may be more popular. It may be cathartic, especially when one wants to make up for some prior loss or to "get back to flat".

    Waiting can be sheer agony. However, there is usually little downside to waiting. You get as many free passes as you would like, so you might as well wait until the advantages are wildly in your favor. In my experience, a moderate skill at fundamental analysis combined with radical selectivity can lead to similar results.

    One can follow the example of Sam Houston, waiting for the perfect ground and a sleeping adversary, then as a Texas Ranger shouted at the Battle of Jacinto,

    Take prisoners like the Meskins do!

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Comments (12)
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  • SA Editor Samir Patel
    , contributor
    Comments (163) | Send Message
     
    Love it.
    18 Aug 2013, 12:35 PM Reply Like
  • Pine Research & Trading
    , contributor
    Comments (164) | Send Message
     
    i second Samir. love it, too.

     

    very Sun Tzu. and one of those important investing truisms that needs to be repeated because the temptation to act rather than act wisely is so strong.

     

    great story and lesson. thx.
    18 Aug 2013, 03:45 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11101) | Send Message
     
    Author’s reply » You are welcome. I'm glad you liked it.
    18 Aug 2013, 04:10 PM Reply Like
  • Maulik Patel
    , contributor
    Comments (54) | Send Message
     
    Thanks for the lessons. It's always temping to put some action on, especially during these rallies.
    18 Aug 2013, 11:37 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11101) | Send Message
     
    Author’s reply » You're welcome. It is always tempting.
    19 Aug 2013, 08:05 AM Reply Like
  • mkeenan
    , contributor
    Comments (61) | Send Message
     
    All the more so in a market that has been mostly sideways for six months. A 1-2% move can easily feel like the time to go "all in" on the dip, when it's barely a spec on the 5-year chart.

     

    This reminds me of one of my favorite SA article titles "Don't just do something, sit there". I enjoyed the twist.
    7 Jul 2015, 11:52 AM Reply Like
  • HFI
    , contributor
    Comments (1688) | Send Message
     
    Thank you for this piece! This post once again exemplifies why patience is a virtue few possess and why value investing will always exist, because humans are prone to impatient behaviors.
    19 Aug 2013, 08:45 AM Reply Like
  • Eric Landis
    , contributor
    Comments (3283) | Send Message
     
    Nice piece, thanks for the thought-provoking article.
    7 Jul 2015, 12:06 PM Reply Like
  • Dan26
    , contributor
    Comments (240) | Send Message
     
    Just found this. Such good advice, so hard to follow. I will continue to work on it though
    8 Jul 2015, 09:42 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11101) | Send Message
     
    Author’s reply » D.P. Sullivan,

     

    I am working on it too. I imagine what it must have felt to be Houston watching his country burn. He marched with men whose homes were being destroyed and whose families were being murdered. But he still waited. He was as courageous and as angry as any man could be but must have overheard fellow soldiers accuse him of cowardice. All that, just to wait for the time and place of his choosing.
    9 Jul 2015, 06:44 AM Reply Like
  • Piptief
    , contributor
    Comments (1321) | Send Message
     
    Wow, were have i been looking all along?
    29 Jul, 03:57 PM Reply Like
  • heywally
    , contributor
    Comments (275) | Send Message
     
    Yep, patience, in the Ted Williams sense. Or as one of the traders in one of the Jack Schwager books said - "I just wait until money appears in the corner and go over and pick it up." or something along those lines ....
    29 Jul, 04:41 PM Reply Like
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