Short versus long term

In a stock market like we’re in today, it’s not easy to focus on the long term.

Volatility is high as bad news and good news seems to be announced every day.

What’s an investor to do? Think long term.

The best investments are made when the market is getting beat up. The best investments are not those that will perform well today, this week, this month, or this year. The best investments are companies that can fund growth during bad times.

You see, many companies operate on a razor’s edge. They don’t prepare for down times. They try to maximize short term profits by taking risks either operationally (jumping into the latest craze) or financially (loading up with debt).

The best companies and the best investments operate conservatively, so when bad times come, they can grow their businesses precisely when other companies are over a barrel.

But, conservative companies don’t do as well in good times, so most people ignore them. And, when bad times come, their stock prices get beat up even further because they are spending like crazy to foster future growth and thus reporting lower earnings in the present and near future.

The stock market focuses on the short term, and doesn’t like to hear that a company is expanding during tough times. But, that’s what great companies do, and that’s what makes them great investments over the long haul.

I’m finding a tremendous number of great companies that are expanding into the downturn, planting seeds that will lead to outstanding and profitable growth when things start to improve. Interestingly, their stock prices are taking a beating because they are spending heavily during tough times. But, if you lift your head up to a 5 year investing horizon, you can see just how great an investment they will be.

I’m not saying it’s easy to invest in a company whose stock price is going down. It isn’t.

I am saying that such an investment can look very smart if you’re not investing for the short term. That’s what I’m doing both with my own dollars and my clients’ dollars, and I’m very excited about the results I believe we’ll get over the next 5 years.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

Buying great businesses

When the market is volatile, like it has been lately, I like to look hard at the underlying businesses I own.

Specifically, I like to focus on the economics of each business (competitive advantages, industry dynamics, industry growth, etc.), each business’s management (their long term track record, their business ownership, their pay structure, their focus on shareholder value, etc.) and each business’s valuation (some measure each business’s long term value relative to current price).

Every time I do this, especially when the market is volatile, I’m most happy with the great businesses I own. Why? Because looking at their fundamentals, I feel comfortable they will do well regardless of how much stock market prices fluctuate.

In fact, the best businesses seem to benefit disproportionately when the market seems most shaky. This is when great businesses buy things on the cheap, take advantage of weaker competitors, plan for the next upswing, etc.

And, looking at such great businesses makes me feel very comfortable with how my clients’ and my own money are invested, because I know that when the market eventually recovers, we’ll almost always recognize disproportionate benefits. That’s a nice feeling to have.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.