OT: My two cents on the current Stock Market.
07-18-2002, 03:19 AM
#1
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OT: My two cents on the current Stock Market.
I have noticed a number of threads on this board regarding the stock market. It appears the market is having a tough time. Considering I have made my living investing other peoples money in the stock market for well over twenty years now, I would like to offer a few thoughts that might easy the fear. Note however, I am not a stockbroker and certainly not trying to scare up business. I would simply like to give a little back to this board that has helped me so much with my boating. What follows is my two cents on the subject.
In general, the stock market as a whole is mentally ill. The poor devil is hopelessly manic-depressive. Every day the stock market tells you what your stocks are worth and offers to either buy them from you or sell you more. Some times the valuation appears rather logical and justified by the fundamentals of the business you own. However, most of the time the stock market gets over enthusiastic or entirely too fearful. That is basically why the price of stocks can appear rather silly – such as now.
The quotes you get from the stock market are yours for the using. But don’t let them lead you. You need to think like a businessperson when valuing your stocks. Now, at times when you want to sell your interest and the market is willing to pay what you think they are worth or some ridiculously high price, you may want to transact business. Otherwise, ignore the stock market.
If you are actually an “investor,” as differentiated from a “speculator,” then the market quotes are only there to serve you, not to guide you. Would you accept guidance from someone you knew to have mental problems?
If you are a true investor, you want to buy stocks based on business fundamentals when the prices fall, and sell, based on business fundamentals, when the market becomes over enthusiastic. The Rothschild’s put it more concisely, “buy low and sell high.”
If you are an investor in common stocks, your portfolio is certain to fluctuate. You know this! Look at any chart of the stock market over any period of time – it’s always fluctuating in value over the years. You need to be prepared for this psychologically! In my experience, if you are in the stock market for the long-term (five or more years), you can expect to see declines in the order of one-third or more. But if you are serious about investing for the long-term, you don’t need to pay attention to the day-to-day or even the month-to-month gyrations of the manic depressive stock market!
True investors are never forced to sell their shares. That’s their basic advantage! I can honestly say I have not looked at the value of my stock portfolio for years. I examine the fundamentals of the businesses I own often, but I don’t know the stock quotes for those businesses – I SWEAR! Why, because I don’t plan on needing that money for another twenty years. I cannot stress this enough – your time horizon is the most critical issue! If you allow yourself to be stampeded out of your stocks you are transforming your basic advantage into a basic disadvantage.
One of the absolute gods of my industry is a consultant by the name of Charles Ellis. One of the articles he has written offers the following data in support of the above. “While mutual funds produced a 15% rate of return over the past 15 years [year ending 2000], mutual fund investors received only 10% because they had, as a group, lost 5% by buying high and selling low.” He attributes this to what he calls “itchiness,” but it’s the same thing as allowing yourself to be stampeded.
An understanding of finance is important when making decisions to buy and sell stock. But, I have seen many more individuals make money in the stock market with an understanding of the behavioral principles that govern investing than I have seen with MBAs!
I don’t know if I qualify as an old-timer, but I have certainly been around long enough. My tenure spans a couple of wars, recessions, a stock market crash, a Japanese bubble and subsequent crash, a Tech bubble and subsequent crash, Democrats and Republicans. During all of it, the following quote has stabilized me. “Through all their vicissitudes and casualties, as earthshaking as they were unforeseen, it remained true that sound investment principles produced generally sound results. We must act on the assumption that they will continue to do so.”
In general, the stock market as a whole is mentally ill. The poor devil is hopelessly manic-depressive. Every day the stock market tells you what your stocks are worth and offers to either buy them from you or sell you more. Some times the valuation appears rather logical and justified by the fundamentals of the business you own. However, most of the time the stock market gets over enthusiastic or entirely too fearful. That is basically why the price of stocks can appear rather silly – such as now.
The quotes you get from the stock market are yours for the using. But don’t let them lead you. You need to think like a businessperson when valuing your stocks. Now, at times when you want to sell your interest and the market is willing to pay what you think they are worth or some ridiculously high price, you may want to transact business. Otherwise, ignore the stock market.
If you are actually an “investor,” as differentiated from a “speculator,” then the market quotes are only there to serve you, not to guide you. Would you accept guidance from someone you knew to have mental problems?
If you are a true investor, you want to buy stocks based on business fundamentals when the prices fall, and sell, based on business fundamentals, when the market becomes over enthusiastic. The Rothschild’s put it more concisely, “buy low and sell high.”
If you are an investor in common stocks, your portfolio is certain to fluctuate. You know this! Look at any chart of the stock market over any period of time – it’s always fluctuating in value over the years. You need to be prepared for this psychologically! In my experience, if you are in the stock market for the long-term (five or more years), you can expect to see declines in the order of one-third or more. But if you are serious about investing for the long-term, you don’t need to pay attention to the day-to-day or even the month-to-month gyrations of the manic depressive stock market!
True investors are never forced to sell their shares. That’s their basic advantage! I can honestly say I have not looked at the value of my stock portfolio for years. I examine the fundamentals of the businesses I own often, but I don’t know the stock quotes for those businesses – I SWEAR! Why, because I don’t plan on needing that money for another twenty years. I cannot stress this enough – your time horizon is the most critical issue! If you allow yourself to be stampeded out of your stocks you are transforming your basic advantage into a basic disadvantage.
One of the absolute gods of my industry is a consultant by the name of Charles Ellis. One of the articles he has written offers the following data in support of the above. “While mutual funds produced a 15% rate of return over the past 15 years [year ending 2000], mutual fund investors received only 10% because they had, as a group, lost 5% by buying high and selling low.” He attributes this to what he calls “itchiness,” but it’s the same thing as allowing yourself to be stampeded.
An understanding of finance is important when making decisions to buy and sell stock. But, I have seen many more individuals make money in the stock market with an understanding of the behavioral principles that govern investing than I have seen with MBAs!
I don’t know if I qualify as an old-timer, but I have certainly been around long enough. My tenure spans a couple of wars, recessions, a stock market crash, a Japanese bubble and subsequent crash, a Tech bubble and subsequent crash, Democrats and Republicans. During all of it, the following quote has stabilized me. “Through all their vicissitudes and casualties, as earthshaking as they were unforeseen, it remained true that sound investment principles produced generally sound results. We must act on the assumption that they will continue to do so.”
07-18-2002, 09:02 AM
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Well said Uncle Toys! Coming from someone in the "business" I cannot agree more! What I find amazing is, having so many Fortune 500 executives as clients, these financially brilliant people still invest their own money emotionally! For many, many years, they ran the companies we invest in on logic and sound business practice, but when it comes to their own assets it is amazing how the game suddenly changes.
You have hit the nail right on the head my friend. To all OSOer's, listen to this man. I had the honor of meeting him personally at SkaterFest and he is...shall we say, a partner in one of the most respected and highly regarded firms in our industry.
Best of luck to you all in your investment endeavors.
You have hit the nail right on the head my friend. To all OSOer's, listen to this man. I had the honor of meeting him personally at SkaterFest and he is...shall we say, a partner in one of the most respected and highly regarded firms in our industry.
Best of luck to you all in your investment endeavors.
07-18-2002, 09:02 AM
#4
VIP Member
good words uncle toys. when i started im IRA my financial advisor asked me if i had riden any roller coasters . . .of course . . . did you jump out when it was at the bottom of a hill. 
. i rarely open my statements because i have faith in the system. i dont know much about investing, thats why i have entrusted a proffesional. in the long run the marked will do exactly what i wanted it to, give me a reasonable return.
. i rarely open my statements because i have faith in the system. i dont know much about investing, thats why i have entrusted a proffesional. in the long run the marked will do exactly what i wanted it to, give me a reasonable return.
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07-18-2002, 09:36 AM
#8
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wms - Lets hope the general public never follows the advice because as long as the market stays volatile, the true investor will always have an advantage. Volatility is our friend!
Shane – Thanks for the kind words. I have seen the same phenomenon. Business executives who have built business using sound business principles invest in stocks with complete disregard for these same principles. Why’d you buy that stock? Because my buddy at the club bought it! Why’d you sell that stock? Because the price dropped 50%! Well, if you thought it was a great value at X and it went on sale (marked down 50%), why didn’t you buy more?
Glassdave – “I rarely open my statements.” That is one of the best ways to handle your stock investments. THERE IS NOTHING IN THOSE STATEMENTS THAT WILL HELP A TRUE INVESTOR! Spend your time and effort on the professional you have hired. Be sure you can supervise them with adequate care and comprehension! Be prepared to spend time, it’s not easy. You also need strong reasons for placing your trust in their integrity and ability! This would be my equivalent of T2x’s preaching about spinning our props out.
Shane – Thanks for the kind words. I have seen the same phenomenon. Business executives who have built business using sound business principles invest in stocks with complete disregard for these same principles. Why’d you buy that stock? Because my buddy at the club bought it! Why’d you sell that stock? Because the price dropped 50%! Well, if you thought it was a great value at X and it went on sale (marked down 50%), why didn’t you buy more?
Glassdave – “I rarely open my statements.” That is one of the best ways to handle your stock investments. THERE IS NOTHING IN THOSE STATEMENTS THAT WILL HELP A TRUE INVESTOR! Spend your time and effort on the professional you have hired. Be sure you can supervise them with adequate care and comprehension! Be prepared to spend time, it’s not easy. You also need strong reasons for placing your trust in their integrity and ability! This would be my equivalent of T2x’s preaching about spinning our props out.
Last edited by Uncle Toys; 07-18-2002 at 10:56 AM.
07-18-2002, 10:13 AM
#9
Charter Member #232
Charter Member
Hey guys he is only giving his 2 cents because that is all he has left from the crash Seriously I am not worried about it I know it will come back. People are scared because of the likes of Aurthor Anderson and such so it is just a matter of time. Then everyone can make their money back again. I feel for people who were on the cuff of retirement that lost it all but hopefully it will all be good.
Jon
Seriously I am not worried about it I know it will come back. People are scared because of the likes of Aurthor Anderson and such so it is just a matter of time. Then everyone can make their money back again. I feel for people who were on the cuff of retirement that lost it all but hopefully it will all be good.Jon
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