Price paid = returns reaped

Investing has to be one of the worst fields for excess noise.

Currently, most people are focused on the short term versus the long term, inflation versus deflation, macro-economy versus micro-economy, developed versus emerging markets, bonds versus stocks, fiscal versus monetary policy, stimulus versus cost-cutting, etc. 

The list goes on and on. 

But, almost all of that is noise.  As far as your investing and financial future are concerned, what matters is the price you pay today.

In the short or long run, whatever you invest in will be at some price in the future and will have yielded some interim cash payments.  If you pay too much for it now, you’ll get a poor return.  If you pay a cheap price, you’ll reap a good return.  That’s it.

All the factors I highlighted above may influence that outcome, but it’s mostly noise, because what you pay for an investment now will determine your return in the future much more than the rest.

This is a simple concept to grasp, but hard to execute.  It’s easy to get distracted by the noise.  I get distracted every day by it–sometime several times a day!

Let’s take the stock market as an example.  With the S&P 500 at around $1110, you’ll get a 6%-like return over the next 5 years.  If you paid the $1023 it was selling for in early July, you could expect at 8%-like return over 5 years.  If you paid the $1217 it traded at in late April, you could expect a 4%-like return over 5 years.

The price you pay now determines your return later.

Emerging markets are growing faster than developed markets.  But, emerging market prices reflect that fact, so the price you pay now determines your return.

Apple is growing like a weed.  But, Apple’s price reflects that growth, so the price you pay now will determine your future return.

If you pay too much now, you won’t get your desired return.  If you pay a cheap price now, you’re return will be satisfactory.

Ignore the noise.  Ignore the crowd.  Focus on price paid relative to value received.

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.

Price paid = returns reaped