The Macro Trumps All Else
July 2, 2010
July 13, 2010

Just A Little Patience….

Let’s face it. Running a business is difficult. Nothing ever goes as planned. There are surprises. Things rarely happen on time or on budget. You need to be a realist about this. If you invest in a company and it doesn’t work out right away—you aren’t always wrong. Sometimes things just take time.

I cannot emphasize this enough. Many of my best winners took a year, sometimes two, for the business to do what I thought it would. This is especially true when a company is dealing with regulators and compliance issues. You have to ask yourself if the issue is insurmountable. If it is, sell the shares and move on. Usually, it is just a question of time. Be patient.

On many other occasions, the business is doing just fine, yet the shares refuse to recognize this. It is quite remarkable really. You bought something that was growing quickly. It grew for two years and the shares were right where you bought them. You can become frustrated, or you can realize that the shares are now much cheaper than when you bought them. Even though the share price is the same, the business has become more valuable. When this happens, you should buy with both hands. It happens more often than you’d think, and those have been some of the best investments for me.

As investors, we’re bombarded by television shows that make you think that everything has to be immediate. They are so focused on the next data point; they lose sight of everything else. Then you have the brokers who only make money when you shift your money around. No wonder they’re always putting ‘analysts’ on the airwaves trying to pitch you on some new stock a week after the last one. Finally, you have the hedge funds that have to show positive monthly performance if they are to continue taking in assets. If something doesn’t work in a few weeks, they sell. They just don’t have the same sort of time horizon that sane people should.

You can either get scared watching each tick, or you can do your research, be confident and go read a good book. I prefer the latter. You just cannot over-analyze a business. If it all hinges on next quarter’s earnings, then you’re not investing—you’re gambling. If you think that a .1% change in GDP is a reason to sell everything, then you are going to lose money. If a $50 dollar move in gold makes you think it’s now a bad investment, then you don’t appreciate bargains when they come to you. Once you buy something, ignore the price unless something changes at the business.

I have no idea what will happen tomorrow or next week. I am focused on what happens a few years from now. I spend my time finding great little businesses that will profit from the big picture trends that I have identified. I’m usually early—that’s fine with me. Sometimes, I pay too much. That’s life. No one ever buys the bottom or sells the top. If I still like something and it drops, it is an even better bargain now.

That doesn’t mean that you can ignore the markets or the news from a company you own. It just means that if the shares are down 20% in a day, don’t panic—it’s probably some overleveraged hedge fund getting redemptions. Use these moves to your advantage. Keep extra cash. NEVER use margin. Be patient. Turn off the TV. Stop watching the ticker. It can only make you do something stupid.

Look at the market. In the past month, all we’ve heard about is how the market is collapsing. Meanwhile, it’s at the same price it was 6 weeks ago. I keep hearing about how the Euro is going to zero. Look at the chart—it’s the same price it was back in early May. Is it really going lower? Those who were following things closely were probably pretty scared the world was going to end. A lot of them sold out of fear. Does that make sense?

Of course, you could be a trader and try to figure out every little twitch in the market. Do you know of any rich traders? I mean billionaire traders? There are plenty of really successful investors. I can’t even name five billionaire traders. Maybe there’s a reason—maybe it’s just impossible. So why focus on something that is impossible? Buy good companies, put them away and wait for crazy opportunities to buy more when everyone else is selling. The whole macro world has come unhinged. On a daily basis, there will be scary news. Invest in businesses that will benefit from the macro trends—or ones that are immune to them. I expect a lot more volatility going forward—that creates a lot more opportunities. However, you need patience.

You need patience to let an investment story play out. You need patience to ignore a bad quarter or two if you like the business. You need patience to ignore the volatility. You just need patience. There’s a lot of mindless noise out there currently.I cannot think of a good investment decision that I ever made in a hurry. Be patient.

Categories: Investment Strategy
Positions Mentioned: none

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