Down through history, there has always been some logical argument to stray from your path as a serious, long-term investor. To stay the course sometimes requires a little extra confidence. Today’s temptation to stray is a good one . . .
Long term investing in companies, over time, has shown to be, we believe, the best proven approach to building and preserving wealth. Long term performance of stocks is determined by the success of the company.
Short term market timing has not proven out over time as a good approach for the serious investor. Short term price moves are determined more by outside forces.
Long term, individual stock prices go their separate ways, each following it’s own destiny, based on the company success or lack thereof. While, in the short term, all stock prices move pretty much in lock step, reacting not to their business, but to macro forces: politics, the economy, government regulations, and most importantly, public psychology.
In times like now, when there is a gigantic lack of participation in stocks, short term or macro influences wield disproportionate battering to market prices. Whether a company is a winner or a loser doesn’t seem to matter. They all seem to be victims of market confusion, wild governmental interference and the macro headlines of the day.
The bad news in times like these is that wise investment strategy might not appear to perform any better than short term timing. The good news is that this phase provides unusual buy opportunities for the serious investor, who does not take the head fake and stays the course. It is possible to take positions that several years from now could look brilliant.
The Wall Street Journal reports that “long-held investment strategies are no longer working very well”. One institutional portfolio manager said, “I’ve spent three decades in this market, and it’s the most macro-obsessed I’ve seen in a long time.”
As is typical of good market opportunities, the public majority is not participating. The Wall Street Journal, on 9/23/10 reported that this year, through August, investors have pulled $42 billion from U.S. stock funds. They’ve added $ 13.3 billion to macro, timing type funds.
We believe history will repeat itself, and the majority will get it wrong, once again.
(Investing in equities can result in loss of capital. Past performance is no guarantee of future performance. This article is not meant as a recommendation or investment advice. It is for informational purposes only.)