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Good Investors Don’t “Look Busy”
With the plethora of news, rumours and whims that get thrown around in the media it is tempting for investors to “look busy” by constantly tinkering with their portfolio. This is counter productive and will not result in the best long term outcomes for investors.
Remember a share is ownership in a real business. In assessing the status of a business one needs to look at the performance of the underlying business, not the share price performance. Once you have determined the “quality” of the underlying business the share price simply tells you whether the business is cheap or expensive. To state the obvious, however it is often forgotten by investors, you buy a business when it is cheap and should it get to the point they are absurdly expensive then you look to sell. A scenario that frequently happens during booms such as the tech boom when Microsoft was valued at well over US$100 per share and today trades at about US$25. When the shares were at their height the underlying business was performing exceptionally well with annual profits growing over 30% per annum for a decade during the 90’s, a feat achieved by no other US company. However, the value people were willing to pay for this company was exorbitant and miles away from a “fair” price. In recent years we have seen a resources boom therefore should we be loading up on these trendy stocks?
Smarter men than myself have used this as the cornerstone for their investing “play book” so I will let them say it.
“Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business”.
Peter Lynch
“When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom”.
Peter Lynch
“Most of the time common stocks (share market) are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed. For indeed, the investors chief problem, and even his worst enemy, is likely to be himself".
Benjamin Graham
“The financial markets generally are unpredictable. The idea that you can actually predict what's going to happen contradicts my way of looking at the market".
George Soros
“I buy when other people are selling.”
J Paul Getty
“The trouble, in my opinion, with corporate America today, is that everything is thought of in quarters” (reference to the short term thinking of investors).
Henry Kravis
“Most of our efforts are focused on understanding the dynamics of how a business works, what makes it unique, and the valuation that one should be willing to pay for it”.
Paul Moore
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