Here's the #1 Distraction for Investors
Imagine yourself 20 years ago…
It’s 1995. You look back over the past 30 years. You recall:
— The Vietnam War…
— Wage and price controls…
— Two oil shocks…
— The resignation of a president…
— The fall of the Soviet Union…
— A one-day drop in the Dow of 508 points — when that was a 23% move…
— and Treasury rates fluctuating between 2.8-17.4%…
And yet despite all of that… the basic principles of sound investing still apply.
Warren Buffett made this observation in his 1994 shareholder letter. Following these principles, he wrote:
“Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
“A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.”
I have written my fair share of criticism of Warren Buffett in these pages (Here’s one example). But as an investor, he’s a wise man. And I would reiterate his basic message to you today.
People get way too wrapped up in what the Fed is doing or the economy or China or currency issues. They let these things distract them from the task of investing soundly. Ironically, it seems to me that the smartest people are the ones most likely to try to predict the unpredictable.
I say go ahead and read whatever you want. Debate the big ideas of the day. Complain about the Fed with your friends on the golf course. Tell them the world is going to hell at the poker table. Decry the state of the world over cocktails.
But when you sit down to invest your money — forget all that stuff and focus on the timeless principles of good investing. Look for good businesses that can compound capital at a good rate for a long time, run by honest and talented people (who are also owners), and aim to hold them for years.”
Thomas W. Phelps wrote a fine summary of what I’m advising you to do here in 100 to 1 in the Stock Market. He wrote how he correctly predicted a number of bear markets earlier in his career. “Yet I would have been much better off if instead of correctly forecasting a bear market” Phelps explained, “I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”
That’s the wisdom I’d pass on to you today. Keep looking for great opportunities. And when you find them, sit on them. This means sometimes you may have to suffer through nasty declines. But over the long haul, you’ll do much better sitting than trying to play the guessing game and call the market’s twists and turns.
There’s more to read on tuning out the noise. I recently finished a memoir called City Cinderella: The Life and Times of Mercury Asset Management. Click here for some of the key investment takeaways…
Regards,
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