In our investment commentary, we discuss how fear takes over for many investors to the point that the overall stock market experiences net outflows of capital (i.e., moving money from stocks to bonds). To long-term investors like us, this is a bizarre scenario, but nevertheless, exists because people are overcome with stock market anxiety. So why doesn’t every investor succumb to this fear that forces behavior that is not conducive to building wealth?
We can’t speak for every investor out there, but for us, we control our investor behavior by drawing a clear distinction between the stock market itself and the companies that trade on the stock market. Simply, we are not investing in the stock market… we are investing in companiesthat just happen to list their stock for public investors to trade. We view ourselves as owners of said companies.
On a summary level, we look to invest in companies that have a clear future growth path, that we can easily understand, is well managed, and ultimately trades below are valuation when we jump in and make our initial investment (i.e., buy the stock). Once we are able to make an investment, as long as nothing changes with our original thesis, our goal is to hold this investment forever. Yes, we know stock market participants will bid the stock price up to a point of being overvalued and then a subsequent price correction may occur at some point in the future. This short-term volatility doesn’t bother us as we know over the long-term the stock price (market capitalization) of the company will more accurately reflect the true value of the company.
With this owner mindset, it is much easier to move past current events portrayed in the news (which are typically negative) and focus on the long-term. For instance, we own stock in McCormick & Company, the spice company. When we read the news about tariffs or lack of trade deals, we first ask ourselves, “will this have any long-lasting effects on the economy?” Then, more specifically, how will this impact McCormick & Company? Quite simply, it most likely does not impact the long-term viability of this spice company. Hence, we acknowledge and give current events the respect they deserve, but that’s about it.
We are extremely fortunate to live in a country with such a robust public stock market. Some would say it is the shining star of capitalism. To have the opportunity to become owners of the greatest companies in the world and to be able to do it so seamlessly is an advantage we have over every other country that quite frankly is hard to put a price on. Unfortunately, many people do not understand this and view the stock market purely has a mechanism to make trades, not long-term investments.
Over time, we will indeed sell stocks as things change with companies… such as our investment thesis, other opportunities, etc. But, at the core of our investment success is to think like an owner that has bought a stock with the intention of holding it until something changes (if ever). Imagine in your neighborhood, the greatest coffee shop in the world exists. And the original owner offers you an opportunity to invest in it. You know it will be there for another 30 years, serving great coffee and serving up profits to the owners. I know I would jump at the opportunity to invest in it and more importantly, have zero desire to ever sell it (why would I). Why not apply this mindset to investing in publicly traded stocks? Inquiring minds want to know!