What does it take to beat the market?
- Be a focused value investor:- Concentrates your capital in stocks of good businesses with strong management.
- Be PATIENT enough to buy them at attractive prices and then hold on as they appreciate.
PRICE BEHAVIOUR in individual stocks:
- 10% of the time they’re cheap enough to buy,
- 10% of the time they’re expensive enough to sell, and
- the rest of the time you should just hold them if you own them and avoid them if you don’t.”
PATIENCE is fundamental to that objective of beating the market.
- All the great investors agree on this point.
- However, most investors do not possess enough of it.
Buffett talks about investors inability to do nothing and just sit still. In distilling the essence of his investing discipline, he sings the praise of “lethargy, bordering on sloth.”
Why not double or triple your investment discipline?
(even if it cannot be measured with anything approaching precision)
- Resolve to wait for the S&P 500 to be off by at least 20% before making a purchase.
- Or insist that a stock be on the new low list before loading up.
- Or wait for those magical times when the yield on normalized current earnings exceeds 15%.
- Or wait until your relatives or friends are asking if it would not be prudent to get completely out of the stock market, or – notwithstanding your esteem for the wisdom of the Mr. Market parable – you cannot help feeling a little queasy about your own equity holdings.
However you get there, limit your buying to the 10% of the time when stocks are really cheap.
Otherwise, just sit still and prepare.
Reference:
Google: Steve Leonard, Pacifica’s website.
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