Look at this. This is a stock’s price.
Now look at it another way. This is not just a stock’s price. It is, borrowing from the legendary John Bogle, a “giant distraction to the business of investing.”
Long term investment returns are created by how businesses perform, but most investors make their investment decisions based on where stock prices have come from and where they may be going.
Anyways, now look at the following chart. This is a stock’s price plus four other “irrelevant” facts that drain most investors when they consider their investments.
These four irrelevant facts are –
- Price the stock sold at its all-time high,
- Price you paid for the stock,
- Price the stock quoted at its highest since your purchase, and
- Price as on today
None of these matters when you are deciding what to do with your stock investment today. The only thing that matters is where the underlying business stands today and where its earnings and cash flows may reach 5-10 years down the line.
Of course, in the long run, stock prices are representative of the value created by businesses. But they are just that, representatives.
Actual value does not gets created in the world of stock market, but in the world of business.
In fact, like Mr. Bogle said, “the stock market subtracts value, due to all the costs we pay to play the game.”
One of those costs include the stress you take looking at your stock prices, which are plain irrelevant.
So, in short, avoid looking there. Look instead at the businesses you own, the managements that run them, and the value they may create over time.
Here are few things I thought were worth sharing with you:
- Do You Know the Difference Between Being Rich and Being Wealthy? (Jason Zweig)
- Framing Your Investments for Context & Clarity (Barry Ritholtz)
- What Is Jio, and Why Are Tech’s Biggest Players Suddenly Obsessed With It? (Medium)
- Dawg on the Wall (Scott Galloway)
- Let’s Play a Game (James Clear)
- The 100-Year History of Self-Driving Cars (Medium)
- Meditation: The human animal is a learning animal; we like to learn; we need to learn; we are good at it; we don’t need to be shown how or made to do it. made to do it. What kills the processes are the people interfering with it or trying to regulate it or control it. ~ John Holt, author of How Children Learn
That’s about it from me for today.
If you are seeing this newsletter for the first time, you may subscribe here.