G'day Fools,
I've got something a bit special just for you this Friday…
(If this is your first Take Stock, rest assured that's far from an insult… we Fools stand apart from the so-called Wisdom of the market…)
As you may know, along with writing the occasional edition of Take Stock, I run our flagship investing service, Motley Fool Share Advisor, with our General Manager, Bruce Jackson.
This past Monday, in our regular weekly update, I shared some thoughts on the market's volatility with our members. I've reprinted it, almost verbatim, below.
Now, more than ever, I am convinced that Foolish investing is the antidote to speculation, day-trading and chart-reading that pervades much of the market (and which often dissolves meaningful wealth!). It's not a magic bullet, and it can't make the bad days go away.
But my money — literally and figuratively — says that long-term, business-focussed investing, which is what we practice at Motley Fool Australia, is the best way I know to build meaningful long term wealth.
So I wanted to share some of Monday's members-only update with you, to give you a look behind the curtain — and hopefully to help you resist the urge to join the headless chooks on the ASX today.
Are You Bored Enough?
Investing is a wonderful pursuit. It's intellectually stimulating, challenging, interesting and the results are crystal clear (not to mention the ASX's 28-fold gain over the past 30 years). There's no hiding from the numbers in your portfolio, and the market isn't going to let you get away with trying to cheat.
It can be exciting — when the market is having a good day or one of your companies releases good news, your brokerage screen can turn a deep shade of green as your portfolio swells.
And it can be totally demoralising when the market swoons (or worse) or when you realise a company you thought was wonderful turns out to be far from it! When your portfolio is full of red numbers, it can be tempting to give the whole game away.
Noise, noise and more noise
That's the roller-coaster ride of the markets — while the index might gain an average of between 9% and 11% per annum over the long term, there are plenty of up and down days. In fact, as of Monday, the All Ords had put on a sum total of 2.56% in the previous 365 days.
Yet over those same 365 days, the 119 market days that have delivered a negative result saw the index fall an aggregate of 57.95%. And the 132 days when we had a positive return deliver a total gain of 60.95%.
That's a whole heap of joy — and despair — right there. 119 days when we felt bad, and 132 when all was right with the world. For what? A 2.6% gain.
The ten best days over the last year saw an average gain of 1.4% per day. Yes, the best part of the year's total gain in just a single day. Similarly, the 10 worst days were down, on average, by exactly the same amount — 1.4%.
So we can take the best ten days and the worst ten days and throw them out. Call it a wash. And those were exactly the times when we felt most elated and most despondent. When we felt like heroes and zeroes, respectively. They net out to exactly nothing. Like they may as well have not happened.
Put that way, I hope the obsession over daily changes in share prices comes into stark relief. It is — to put it mildly — nuts.
(For the record, the percentages don't tally to the 2.56% gain because each calculation is done from a different base, and the number of days — 251 — is the number of days the market was open over the last year.)
The year in review… sort of
Here's an exercise: I want you to try to think back to October last year. Think of how much stress you felt since then when the market wasn't doing what you wanted it to do. Now think of how much you enjoyed the good times, when the market was having a 'good day'.
Now ask yourself — if you'd have known the market was going to advance by a net 2.5% between then and now, would you have felt the same grief? The same joy? I very much doubt it. Or if the market had gained exactly 0.01% per day every day since then?
Studying business is wonderful. Understanding what makes companies and markets tick is a never-ending investigation — one that compounds over time, as we add new knowledge and experience to the things we already know.
That's the business 'bit' of investing. The share price 'bit' is the only scorecard that matters over the long term. But in the short term, the share price bit of investing is a complete and total irrelevance.
This will be unfathomable to some readers, but there are some days I don't check my portfolio.
Of course, I keep an eye out for company news and announcements (and I have alerts set up to let me know if share prices move dramatically), but some days, I have no idea what my portfolio or our scorecard have done. And that makes me a much better investor.
Intraday highs? Intraday lows? Buyers? Sellers? Who cares? If I'm buying shares, I don't care whether the price has been higher or lower in the past hour, day, week, month or year. Or years. I don't care whether it goes higher or lower after I bought it.(Actually, that's not strictly true. As a 'net buyer' of stocks over the next decades, I'd be better off if shares went lower so I could buy more, more cheaply. But for the purposes of how I feel once I've bought shares — or recommended them to our members — the short-term doesn't matter a zac.)
Please, stop!
If you're tempted to look at your portfolio multiple times a day, please stop.
If you're worried about the market going higher or lower after you buy, please stop.
If you're waiting for a 'pull-back' before you buy, please stop.
If you're letting price-watching go from a passing interest to an obsession, please stop.
Remember Warren Buffett's retelling of a lesson he learned from Ben Graham:
"… like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence."
Even the best and bravest of us, those who swear never to be corrupted by the market's moods, put ourselves at risk if we continually expose ourselves to it. Buffett himself moved back to mid-western Omaha, Nebraska from New York, in part to escape the temptation to 'do something' — and that was before personal computers and the internet.
If Warren Buffett was 25 today, I don't doubt that he'd go cold turkey on the internet during market hours — and maybe even move his computer to a different room to avoid the distraction.
I understand the temptation. I've been there. It's taken me a long time to wean myself of the addictive flow of 'data' that we too easily get sucked in by.
So please, for both your health and your wealth, log out of your brokerage account. By all means, keep the investing obsession, but sate it by reading about businesses, investors, technology and trends. Follow Charlie Munger's path and read widely — about science, maths, history and philosophy.
What investing is REALLY about…
Remember, investing isn't a mathematical pursuit — at the core, it's the study of human behaviour. How we earn, how we spend, how we think about the past and the future. About exuberance and despair. About the power of brands, marketing and technology. Yes, there's some arithmetic when it comes to paying an attractive price, but unless you can assess quality, the maths won't help
Do yourself a favour — lower your stress levels and improve your investing returns. Ignore the market. Don't look at your portfolio, especially during market hours. Your long-term results (and the future 'you') will be better for it.
Isn't that better?
So that's the crux of what Foolish investing is all about.
Here's to your investing success.
