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“After several months of relative calm in Europe and an uptick in the U.S. economy, investors just emerging from their bunkers are realizing that the rally train might have left the station already.
The dilemma for those who sat out the U.S. stock market's recent climb: Should they jump into an upswing that could quickly evaporate, or risk missing out on further gains?”
I don’t fault the WSJ for articles such as these; people are interested in these types of discussions, and it will help sell some newspapers. However, for investors, let’s remember two important things: First off, nobody has the slightest idea where the market is heading next; second, if you are a value investor with a degree from Buffett & Munger University, this is simply noise that blocks intelligent investment decision making.
On the first point, the fact is that nobody has the slightest idea where the market is going. More importantly, attempting to time market investments based on potential short-term moments (also known as guessing) rather than underlying company-specific fundamentals is a fantastic way to succumb to emotional decision-making; as I’ve highlighted in recent articles, “playing the market” may very well come with some excitement thanks to our wiring. Unfortunately, you're likely to lose your shirt in the process.
Second, the question of whether or not the market will move higher or lower over the next three months is noise in the big picture; if you’re planning for your retirement 20 years from now, does it really matter whether your portfolio moves up or down 3% over the next 12 weeks? If it doesn’t, then why do people feel the need to endlessly fret over such trivial movements that are a net negative to achieving long-term financial success?
As Seth Klarman has noted in the past, his competitive advantage in investing comes from his long-term focus in a world that only cares about next quarter’s earnings. For investors wishing to shed some competition, stop fighting the day traders and their brethren: stick to a long term value based investment strategy to differentiate from the crowd and put yourself in a position to succeed while still sleeping comfortably at night.
As the new week begins, investors would be wise to take the Journal’s article with a grain of salt, and remember two great quotes from Warren:
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
“There seems to be some perverse human characteristic that likes to make easy things difficult.”
About the author:
I'm a value investor, with a focus on patience; I wait for great companies that are suffering from short term issues, and load up when those opportunities become present.
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Perhaps the Oracle's #2 quote is answered by another:
'It is not only the most difficult thing to know oneself, but the most inconvenient one, too.'