Over 20 years ago when I was a trader on the floor of the New York Futures Exchange, every Thursday afternoon was a big event. It was at 4:00 PM that the Federal Reserve released the latest figures on the money supply. When the Fed released the report, trading activity picked up dramatically. It was a real market mover as most traders were trying to guess what the “number” would be and trade accordingly. Most of us had no idea what the money supply was, let alone trying to predict it. Looking back now it seemed so silly that the market capitalizations of companies would rise and fall based on a number that came out each week that over the long term had very little impact on the fundamentals of the company.
Since then nothing much has changed. Turn on the radio, Internet and television and questions are posed to stock analysts and “market experts” on how the latest government report will affect the stock market during the course of the trading day. Trying to predict the stock market’s next wiggle or jiggle is pretty difficult if not an impossible feat. Once you look at stocks with a different attitude, you are able to invest with less stress and have more success. Instead of trying to guess what will happen to the stock price over the next three to five days, start to look at how the company will continue to expand their competitive edge in their industry over the next three to five years.
If you buy a great company at an attractive price, who cares what happens to the economy over the next several quarters. A great company will continue to increase sales and earnings, gain market share and find ways to add shareholder value over the long term. What long term affect did the San Francisco earthquake of 1906 have on Coca-Cola (KO)? Did the resignation of President Nixon in 1974 really put a damper on the long term growth of Gillette? While these were the major events of their day, the impact on great companies over the long term was minimal. I wonder how many entrepreneurs in the last decade delayed or scraped their plans to start their own business because the latest government report came in slightly above or below analyst’s expectations.
If one doesn’t have the patience to wait three to five years or longer, then they shouldn’t be investing in stocks. A trip to Las Vegas or Atlantic City would be a better option for them. There really isn’t a good or bad time to invest in a company based on economic or world events. As long as you have a working knowledge of what the company does, have confidence they can expand their competitive advantage, pay an attractive price, and have patience, you’ll come out ahead. Over the long term you will have less stress and worry and instead spend more time watching your account balance grow.
Originally printed in the August 2006 issue of www.HiddenValuesAlert.com