The Time to Invest is Now

I was in a store on Christmas Eve when a long time reader asked if I was having a heart attack over the record market loss for that day. I responded that if stock market movements gave me a “heart attack” then I am definitely in the wrong business. We talked about the difference between the stock market and the economy and I pointed out that both have been heading in opposite directions the past few months, but only one of them mattered to me. Ironically, the very next trading day on December 26th the stock market had its biggest point gain ever. So the question to ask is, who was right about the economic future, the sellers who drove the market down on Christmas Eve or the buyers who drove it up on the 26th? These two consecutive record days, each going a different direction, will be a topic of discussion in future college textbooks as the next generation is taught what matters and what does not when it comes to investing.
The computerization of the stock trading has essentially created two different markets. The first is focused on assembling a portfolio of great companies whose value is expected to go up over the next few years. The second is comprised of short term traders who don’t care what a company is worth, but merely seek to profit from daily market movements. The first group is focused on corporate earnings and economic growth. The latter seems more interested in what they read on Twitter® and how they think it might move markets.
The vast majority of investors I know are, or should be, in the first group. They want to own companies and profit from their growth. The challenge for this group, and what leads to “heart attack” comments, is that they often mistake the short term market movements for an indication of long term value. In a sense, they play into the hands of short term traders who make money off rapid stock movements and the fear and greed they cause.
I have studied the great investors of the last century and have been unable to find a single one that was a short term trader. As the great investor Peter Lynch once said, “I can’t recall ever once having seen the name of a “market timer” on Forbes‘ annual list of the richest people in the world.” And then Mr. Lynch gave the key that made him one of the greatest investors of all time. He said, “The time to invest is when you have money and the time to sell is when you need money.”
The national and world economies continue to grow and with technology opening up huge untapped markets, I can’t think of a better time to be an investor. But if you are going to invest, make a new years’ resolution to stay in group one and don’t allow those in group two to pull you into their short term trading trap.