🧠Watching Stock Prices Daily Is Like…
Friends,
Imagine an owner walking her dog in a straight line through Central Park. Your task is to predict where her hyper-active dog (not the owner) will be at any given time.
Seems simple enough. But there’s a catch: the leash is 100 feet long.
Now, your job seems much harder. The owner’s movements might predictable, but the dog’s location is not. You quickly realize that any precise short-term prediction about where the dog will be is often wrong.
If, however, you zero in on the fact that the owner – and, thus, the dog – will eventually reach the other side of the park, things change. At the very least, you can be vaguely right in your prediction of where the dog will eventually be.
In the investing world, being “vaguely right” is great.
One of the biggest mistakes beginning investors make is thinking that a company and its stock are the same thing. They are NOT.
- A company is a group of people working together to provide a valuable good or service in the real world. Change often occurs slowly.
- A stock is a symbolic representation of what others think the future direction of the company will be. That can change rapidly.
A business – like the dog owner – can make slow and steady progress. But the stock – like the dog – can whipsaw in any direction randomly. Crucially, however, just as the owner and the dog are linked via the leash, so too are a company and its stock.
As the past year has taught, the length of the leash (the valuation we pay) is the most important factor over the short-term. But because that link exists, we can be fairly confident that a portfolio of stellar businesses will (over the long run) arrive at its destination and provide stellar returns.
Twenty years from now, being “vaguely right” about the direction of the businesses we own (and the market as a whole) is all investors need to focus on to compound their wealth at a solid rate.
Watch the owner, not the dog. Watch the business, not the stock.
In theory, that’s easy. In practice, it’s brutally difficult.
– Brian Feroldi, Brian Stoffel, & Brian Withers
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One Simple Graphic:
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One Piece of Timeless Content:
Chris Mayer, author of the great book 100 Baggers, often gets the question “Do you have any ways to help investors hold on to their stocks longer?” Mayer’s response was great.
One Twitter Thread:
If you are still in the workforce, the odds are good that resume needs an upgrade. This thread by Austin Belcak shows you how to do it the right way:
March 25th 2022
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One Resource:
Are you a Warren Buffet fan? If so, you might want to turn off Netflix this weekend and binge on CNBC’s Warren Buffett Archive. It has:
- Video of 29 full Berkshire Hathaway annual meetings
- 140 hours of searchable video with transcripts
- 520 video clips covering scores of subjects
One Quote:
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