Thinking like a business owner – not like a trader

Editor’s note: I’ve known Dan Ferris, as both a friend and as a colleague at Stansberry Research, for many years. I’ve learned a lot from him about how to value stocks. So today, I’m sharing an article written by Dan about why investors should think like business owners, not traders…

Michael Mauboussin: Some Influential Books Along The Journey

If you’re like most investors, you probably worry too much about short-term share-price movements.

To make several times your money in the stock market, you must learn to find great businesses… buy them at cheap prices… and above all, hold on to them long enough.

Multibaggers take time. If you can’t be patient, you can’t get rich in stocks. Period. No ifs, ands, or buts about it…

The good news is that these days, it’s easier than ever to be patient

Andrew Pastor, a portfolio manager at asset-management firm EdgePoint Wealth Management, pointed this out. He says the average holding period for NYSE-listed stocks since the 1960s has been shrinking. From his essay…

The lesson is simple: Holding stocks for as little as two to three years qualifies as a competitive advantage for investors these days. (Pastor uses the term “proprietary insight,” the edge you give yourself when you behave differently from the crowd for intelligent reasons.) As he puts it…

Seth Klarman: Don’t Give Up On Value Ben Graham Is Still Relevant

I believe the most overlooked edge an investor can have is time – the willingness to look further out than other people. Fortunately, those who want a time advantage don’t have to wait as long as they used to since investors are holding their stocks for shorter and shorter periods…

Today, having a view about a business two or three years from now can be a proprietary insight.

Our strategy is designed to exploit this competitive advantage. The average holding period for all Extreme Value recommendations since inception in 2002 is about 1,150 days, or a little more than three years.

So some of the best benefits you’ll get from our strategy aren’t even included in our published results: better tax treatment and far lower trading costs. Commissions and fees, interest rates, and other “frictional” costs of overactive trading will eat away at your profits over time.

Don’t be a trader in the stock market. Be a business owner

Rising Corporate Bond Spreads Worrying To Analysts

If you own a pizza parlor, you don’t wake up every day thinking about selling it so you can buy a shoe store. You think about how to make better pizza, how to sell more pizza, or how to do something for your customers that competing pizza parlors aren’t doing. You plan to hold that business for the long term.

Equity is long-term capital, the longest-term capital, with no expiration or maturity date. If you’re going to succeed as an equity investor, you must think long term. Obsessively watching share-price movements conditions you to think short term. You should be spending that time studying the businesses you own.

The lesson here is that a stock isn’t a lottery ticket with a price graph attached. It’s a proportional share in the fortunes (good or bad) of a real business.

That’s how I approach every buy, hold, and sell recommendation I make. You’ll do yourself a huge favor by doing the same.

Good investing,
Dan Ferris

LEAVE A COMMENT


X
Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers

0