Buffett’s view
In his 1966 letter to shareholders, Buffett set out his views on investor should care about company performance but not market performance. The following parts in italics are my complete excerpts:
“I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.”
Of course, this rule can be attacked as fuzzy, complex, ambiguous, vague, etc. Nevertheless, I think the point is well understood by the great majority of our partners. We don’t buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do. The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.
Let me again suggest two points: (1) the future has never been clear to me (give us a call when the next few months are obvious to you – or, for that matter the next few hours); and, (2) no one ever seems to call after the market has gone up one hundred points to focus my attention on how unclear everything is, even though the view back in February doesn’t look so clear in retrospect.
We will not sell our interests in businesses (stocks) when they are attractively priced just because some astrologer thinks the quotations may go lower even though such forecasts are obviously going to be right some of the time. Similarly, we will not buy fully priced securities because “experts” think prices are going higher. Who would think of buying or selling a private business because of someone’s guess on the stock market?
The availability of a question for your business interest (stock) should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations in turn formulate your judgments. A marvelous articulation of this idea is contained in chapter two (The Investor and Stock Market Fluctuations) of Benjamin Graham’s “The Intelligent Investor”. In my opinion, this chapter has more investment importance than anything else that has been written.
Focus on what you can control
Buffett’s views on the company and the market in his 1966 letter to shareholders quoted above; if he translates his words into a more straightforward language, it means that investors should focus on what they can control. Suggest you read my previous articles “How investors should look at economic trends and forecasts?” and “Information investors need should be important and knowable“
Behavior of Retail Investors
But most investors are doing the opposite: they are eager to seek out the stock market, guess the fluctuation of the stock market and decide their next investment behavior. The most obvious manifestation of investment behavior is to rush, trade at the right time, and grab short-term; or use stock price charts and technical analysis to determine the next step of investment.
The most famous example
The father of the overall economy and investment master Keynes also adopted the same investment behavior as most investors when he was young: that is, from the perspective of the overall economy, it is determined by the performance of the stock market. His overall stock market investment strategy and individual stock selection resulted in his poor investment performance when he was young. When he was young, Keynes was proud of his talent and adopted a speculative investment method (he described it as the animal instinct of human nature), and did not accept long-term investment or value investment.
Everyone knows the later results. As Keynes got older, he revised this investment method; he changed it to long-term investment, value investment, and concentrated investment to achieve outstanding investment performance. He said: “The biggest mistake most investors make is to pin everything on hope, but hope is just hope, and it may not happen.”
About forecast, he said “We simply don’t know.”
About Keynes, see my other article “John Maynard Keynes, Investment master“
Related articles
- “How investors should look at economic trends and forecasts?“
- “Information investors need should be important and knowable“
- “Why timing the market or band trading simply not work?“
- “John Maynard Keynes, Investment master“
- “Investors should not trust forecasts“
- “Focus on company performance rather than market“
Disclaimer
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
