| Think Like a Business Owner, Not Like a Trader | | By Dan Ferris, editor, Extreme Value | | Wednesday, May 17, 2017 |
| 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…
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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 in January. He says the average holding period for NYSE-listed stocks since the 1960s has been shrinking. From his essay…
| Decade | Avg Holding Period | | 1960s | 8.33 years | | 1970s | 5.25 years | | 1980s | 2.75 years | | 1990s | 2.17 years | | 2000s | 1.17 years | | 2010s | 0.58 years |
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…
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. |
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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.
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
Editor's note: Dan's strategy is to invest in high-quality, dirt-cheap industry leaders – and hold for the long term. It's an approach that has made him one of the most successful analysts in our industry. Right now, the average return in his Extreme Value portfolio is a huge 56.8%. To learn more about a risk-free trial subscription, click here. |
Further Reading:
"You won't have to pick stocks anymore. They'll pick you!" Dan writes. One resource you may not have considered can help you identify stand-out companies... great businesses you want to own for the long haul. Read more here: Three Clues for Finding Companies That Jump off the Page. Instead of betting on specific outcomes, Dan says you should hold world-class assets for the long term – investments that can survive whatever happens in the markets. Preparing your portfolio for a wide range of outcomes isn't easy... But these simple tips are a great way to get started. Read more here: Five Ways to Prepare for Any Market Environment. |
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NO BOTTOM IN SIGHT FOR RETAILERS
Today's chart highlights the continued decline of American retailers... For proof, we'll look to the largest specialty jewelry retailer in the U.S., U.K., and Canada: Signet Jewelers (SIG). The company owns about 3,600 stores under its brands – which include Kay Jewelers, Zales, and Jared the Galleria of Jewelry. That's a big brick-and-mortar presence... To no surprise, Signet reported its sales fell for the third consecutive quarter during its last earnings report. As you can see in the chart below, Signet has suffered a downward slide over the past two years. Shares just struck a new four-year low yesterday... And they are now down more than 60% from their October 2015 highs. Looks like no one "went to Jared" lately... |
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| Why Dan rates this 'World Dominator' a buy today... Dan knows that owning dominant companies for the long term is a great way to grow your wealth. Today, he shares his latest World Dominator... |
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| How Have You NEVER Heard of This Company? | | By Dr. Steve Sjuggerud | | Tuesday, May 16, 2017 |
| | Have you seen a list of the world's top 10 largest companies recently? It has changed dramatically – in just a few years... |
| | Volatility Won't Cause a Crash in U.S. Stocks | | By Dr. Steve Sjuggerud | | Monday, May 15, 2017 |
| | Fear in U.S. stocks just hit a 24-year low, according to the market's "fear gauge." |
| | These Stocks Are Set to Outperform the S&P 500 | | By Justin Brill | | Saturday, May 13, 2017 |
| | Suddenly, investors are no longer favoring the U.S... Money is now moving out of American stocks – and into European and emerging market stocks – at the fastest rate in years... |
| | Do You Use This Trading Tool to Get an Edge? | | By Ben Morris | | Friday, May 12, 2017 |
| | Quality tools can last you a lifetime... |
| | Is This Popular Investing Myth Hurting Your Portfolio? | | By Meb Faber | | Thursday, May 11, 2017 |
| | Today, we're taking a look at the damage that one popular investing myth may be doing to your portfolio... |
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