Investing is not voting


I mentioned the phrase “investing is not voting” in three places in my book “The Rules of Super Growth Stocks Investing”: 1-5, 5-4, and postscript.

Because this sentence is so important! I have recently studied several listed companies in the US stock market, and I have a deep understanding of this sentence.

What is a good stock?

Regarding the definitions of “what is a good stock?” and “what is a good company?”, most investors will subconsciously respond “a company that can make me make money is a good stock.” But the question is what is the definition of a “profitable business”?

Investors themselves often do not know, and when they answer the question “What is a good company?”, they are mixed with emotions and preconceived elements. Then, answer to “What is a good company?” directly affects the answer to the question “What is a good stock?”, and of course, it will ultimately affect stock selection, investment judgment, and reward.

What kind of compensation do investors want?

I believe that most investors can’t answer this question, and almost everyone will answer “of course the higher the better.” This answer is the same as all financial advisors complain: 99% of investors want “high-reward, low-risk investment targets.” The problem is that there is no such thing in this world.

Retailers can never beat the market

The author of “Winning the loser’s game” Charles Ellis, “While most investors are doomed to lose if they play the conventional loser’s game of trying to beat the market through active investing, every investor can be a long-term winner,” he concludes. The problem is that most investors don’t believe this sentence. I think he pierced the new clothes of the lord of wealth management industry.

Because most people think that looking for an expert, looking for an MBA, looking for a financial expert, looking for a Ph.D., looking for Wall Street, I can do it, I can make a fortune, there must be a formula for getting rich in this world, but I haven’t found it yet. That’s why the stock mutual fund industry has been around forever–because they have found a bunch of these people who meet the criteria set by investors as financial experts.

Investors waited until they got older and used up all their time to compound interest before they discovered that Charles. Ellis was right, but it was too late. At this point the mutual fund industry has already made enough of your custodial fees and transaction fees, and then gives you a mediocre long-term reward, even less than ETF tracking broader market, but it’s too late.

A typical example

Because the average person thinks that the annualized return will increase by a single digit on average a year, most people will think that it is not a good stock. I was previously in “HP is an important and good company, but not a good stock? “In this article, it is explained:

  • The stock price of HP (ticker: HPQ) has risen by 1028.88% in the past 20 years! Its annualized rate of return is 12.36%.
  • Intel (ticker: INTC) was only 117.4% during the same period, and Intel’s annualized return was 0.81%, which is a very poor performance and should be the worst share price performance among large-cap stocks I know.
  • The S&P 500’s annualized return over the same period over the past 20 years has been 7.38%; it represents the broader U.S. stock market.

The difference among the three is very large. Most of the well-known companies in the US stock market can not have such a performance as HP. I deliberately used Intel as a comparison. Because almost everyone will assume that Intel is still in the Dow Jones, but HP has been excluded from the Dow for many years, people must think that the Dow is authoritative, and the company that stays in the index must be better.

Even if you don’t count on the Jones Index, Intel companies are bigger, well-known, and Hewlett-Packard is its downstream manufacturer. Most people must think that Intel is a good company in all aspects (including investment rate), and will not challenge these common sense or authority, let alone actual performance (that’s the point).

Voting behavior in the stock market

But the problem is that common sense, authority, and most people’s beliefs—these are unfounded and untenable. However, investors still stick to their own opinions regardless of this. I believe that even with these facts, most people still think Intel is worth investing in than HP, and that doesn’t change that opinion.

This is the act of voting in the stock market, which is conformity.

Most well-known companies have poor investment returns

The well-known business book “Built to Last” has calculated that the stock price performance of companies before and after being listed in the Fortune 500, after being listed on the list (that is, after the company becomes famous), most of the performance is getting worse. You don’t believe this view!

There is another example, that is Coca-Cola; for details, please refer to my “Coca-Cola has been inferior to Pepsi in and even return rate is negative in past 10 years!

Half of Fortune 500 companies lose money

I mentioned on 4-2 of my book ” The Rules of Super Growth Stocks Investing “: Between 2008 and 2015, only 258 of the Fortune 500 companies were profitable; that is, 242 precisely, half of all businesses are losing money on the books. How is this possible?

I mean that stock performance has nothing to do with a company’s reputation, but that’s not what the average person thinks. Most people have the “halo effect”, or the “watermelon effect”, and think that fame is everything (including its stock compensation). Remember we are doing investment, not voting. That’s why I wrote last year, “Why the successful skills needed for stock investment is opposite of successful workplace skills?” If you hold the same opinion as crowd, it is impossible to make a lot of money, because most people think that famous companies is safe and profitable, and companies should be the top 500 companies. This is untrue.


Closing words

I want to remind everyone to think about what they want before investing. What you really want? and do you know the company at all? Benjamin Graham famously said: “In the short run, the market is a voting machine; in the long run, it is a weighing machine.”


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