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Sumit Shah
Eric Houssels
Articles (5983) 

Distractions for Fundamentals Value Investors

September 30, 2010

As knowledge workers in our economy, time is really all we truly have. Per Carl Sandburg, time “is the coin of our life and only you can determine how it will be spent.” Our job, as fundamentals value investors, is to make good investments as measured by our portfolios’ long-term returns (while avoiding any material risk of annihilation along the way). And our ability to do so will be determined by a number of factors, but one we do firmly control is how smartly we use our coin of time. It stands to reason, then, in Mungerian fashion, we should have some understanding of how not to spend our time. We have arrived at the title of this ditty. Here are a few distractions that I continually find myself fighting:

  1. Macroeconomics. Peter Lynch nailed it when he proclaimed that if you spent 15 minutes per year thinking on macroeconomics, you have wasted 10. There are important macroeconomic forces, and we should not be blind to them; yet, this is all many people ever want to talk/think about. The CNBC folks run the daily soap opera on the economy, overanalyzing every piece of published data in their quest to update some fictional economy scoreboard. They seduce their watchers into this US economy as the ultimate football game with the economic growth metric serving as the key determinant of our (yours and my) national identity. Phooey! Go ahead and put in your 5 minutes per year to understand the big, obvious forces but then get back to work trying to find good investments.

  2. Politics. Not unlike #1 above, discussions of politics can be very seductive. Our politics reflect our identities (which most of us are quite proud of); and conversing politics represents an opportunity to express our identities at very little or no real cost. Moreover, political power provides its seekers or its conversationalists with the illusion of control over economy. How often have I heard someone cure our nation’s recession (i.e. a negative score on the economic growth scoreboard) by prescribing czar-like action on the part of all or a combination of monetary policymakers, legislators, and regulators. The problem here is that, while government plays a part in influencing the ultimate returns to our investments, it certainly is not the determining factor in the overwhelming majority of cases. What price you are paying for what assets you are receiving is the investor’s real bread-and-butter task; discussions of politics – while fun (confession: I like them a lot), far more often than not, do very little to help make better buy, sell hold decisions, so once again…get back to work.

  3. Market predictions. Stocks have a tendency to move together in the short run; yes, there is something called market risk. That being said, I view stock index guessing to be little more than a lazy person’s speculation. It’s as if actually turning the pages in study of a particular, well defined opportunity (i.e. a stock) is simply too tedious and “unfun” so one might as well harbor speculations on the most visible – and emotionally charged – statistics of our industry, the index. I am still seeking a market prediction for a stock index, which itself is composed of the valuations of many companies, based on an at least somewhat thorough understanding of the index’s constituents (i.e. a compilation of reasonable intrinsic values of the constituents versus their then current market prices). Please send it to me if you find one. Instead, market prognosticators shortcut the grunt work and make a “market call;” they are “in action” (which is very satisfying emotionally) and may feel as if their work is all the more important as it speaks to an even larger entity than some boring little single company. It isn’t and I suggest that they, too, get back to work.

In closing, the above are just three basic distractions I have found to interfere with the useful work I have done over my investing career. There are obviously others, and it behooves us all to limit them so that we may spend as much of our time-coin learning about and answering the most important questions that will directly determine the successes of our buys, sells, and holds.

Eric Houssels is the co-founder and managing member of Houssels Capital Management, LLC, a money management firm based in Las Vegas, NV. The firm focuses on investments in the stocks of publicly-traded companies of all capitalizations that possess, preferably, significant earnings power or, alternatively, assets that can be (re)deployed to achieve significant earnings power and are trading at reasonable valuations. Houssels Capital Management was founded in 2000.

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