Following the stock market closely over the past few months, we have seen many different factors in play that seem to be influencing the global economy. Whether we’re talking about the rapid decline in oil prices, central banks running the printing presses, or earnings releases from individual companies, there is truly an endless supply of data to take in.
With so much tugging at your attention, where should your focus be? Should you spend time running the numbers and trying to piece together all of these data points – some of which seem to conflict with one another – in order to try to gain an edge? Should you read all of the analyst reports (which tend to be wrong anyway)? Who can you trust when the majority of market commentators have an incentive to try to make you feel one way or the other?
Table of Contents
Don’t Get Caught Up In The Noise
While the turbulence continues in capital markets, never forget the one true goal of a long-term investor looking to Get Rich: Accumulate assets to build ever-increasing streams of cash flow. This is really the crux of everything. When in doubt, acquire quality assets; regardless of what governments are doing, where interest rates or going, what’s happening to commodity prices, the bottom line is that strong businesses will continue to reward shareholders who have the fortitude and reserves to be able to buy when there’s blood in the streets.
To succeed as a long-term investor, you need to move to the beat of your own drum. You simply cannot let yourself get sucked into the machine that has been built around the financial arena. The one thing we have repeated to ourselves over and over through the years and which has allowed us to profit immensely during the financial crisis is this: Will Company XYZ be doing more or less business in twenty years? If after analyzing the company both qualitatively and quantitatively we feel that more business will be done in twenty years, our decision making becomes much simpler. It is difficult to really lose money if you’re buying a company that is going to be serving more customers in two decades from today. A superior company that does more business also tends to reward shareholders through increased dividends – and for us, that’s what it’s all about.
The “Experts” Don’t Really Know Anyway
We are also intrigued by the forecasts put out by central banks and financial analysts alike. Despite overwhelming evidence that they continue to get things wrong, the general public loves being comforted by the delusional notion that anyone actually has some sort of crystal ball in which to look. Regardless of continual past errors, people still place importance on these analyses.
Consider the following:
“It [Bank of Canada] projected the Canadian economy to gather steam in the second half of the year, allowing real GDP growth to average 2.1 per cent in 2015 and 2.4 in 2016.”
Source: https://ca.news.yahoo.com/bank-canada-release-monetary-policy-report-exploring-oil-090010316.html
So, in the midst of being completely taken by surprise with over a 50% drop in world oil prices during 2014, the Bank of Canada is projecting well into 2016 already. Why would anyone invest money on the basis of these projections? Why would anyone place any credence on multi-year analysis by an institution that has already demonstrated an inability to see a few months into the future?
At the very least, you need to be considering the source of the information you are receiving. We love to read anything Warren Buffett says or writes because he has a proven track record over a sustained period of time. He’s not trying to sell us anything and he’s not concerned about his job security.
Don’t Be Fooled By Misdirection
The one guiding principle in your life is that you are responsible for your financial future. Do not look to forecasts and promises of a future that may never come to be. Your job is simple: Spend every day of your life making improvements so that you will reach the future you envision for yourself.
Spend your time concerned with your own affairs and working on what you can control and you’ll be sure to make a better life for yourself. As far as interest rates and currency-printing by central banks goes, that’s out of your hands and ours. Worrying about too many variables leads to poorer returns. Focus on a few things and do them well.
Invest your money regularly and intelligently and don’t worry about what the “experts” have to say. The best way to Get Rich and beat this game of relying on others to predict the future is to not play!
Thanks for reading.
– The Get Rich Brothers
How much weight do you place on analyst/central bank reports?
Pictures courtesy of pixabay.com
Hi GRB,
I totally agree and that’s one of the great lessons Warren Buffett has teached to the world… but most people still don’t listen… and it’s okay like that because if everybody would listen and do the same it wouldn’t work anymore. The “noise” creates opportunities for us.
One thing about what you said remains hard to do though. If we are unable to predict how a company is going to do oveR the next quarter how is it possible to know how it’s going to do over the next 5-10-20 years… There is a lot of “art” and “guts & feelings” in that analysis too… Who would have thought 20 years ago that Sears or Kodak would have become what they are today?
That’s why it is also important to be diversified.
Cheers
Hi Allan,
Diversification is definitely important in the investing world. The reality is that as humans we are fallible. We make mistakes. By and large, though, if we focus on the right things we have the capacity to do very well over the decades.
I agree that it is difficult to predict how companies will do over time but I would suggest it is actually easier to foresee a company doing well over a period of a decade than it is over a period of three months. A well-run company is able to build over time on successes and work toward the future. Over any given three month span, however, it is anyone’s guess as to whether results will be up or down. I have my hard earned cash invested in JNJ because I believe it is well positioned to benefit from healthcare trends over the next many decades despite the fact that I have no clue what will happen with the company next week.
Take care!
– Ryan
Your sub headlines ring very true. I always say not to get caught up in the noise. I was fully invested back in 2008 and 2009 when my entire portfolio was deep in the red. You can bet there was a lot of noise back then telling investors to sell, get our of stocks, the worst market since the depression. It was pretty bad. I’m happy to announce that I held on to every stock and every share during those dark months. And when fresh capital was available I continued to invest and tune out the noise.
Another favorite thing I like to do is save a few old finance magazines and newspapers from several years back. It’s always very interesting to see how these so called experts often get many calls wrong or way off time wise when reading a magazine or newspaper dated in 2009 or 2010. It really just shows me that no matter what the experts tout on TV or in print, as long as I buy high quality names and spread them out over many different companies and sectors I’ll be OK in the long run nomatter how good or bad the experts say the market currently is.
Thanks for stopping in, DH,
The years of the crisis and particularly 2008/2009 were definitely tough ones for investors. Even for us who have read the theory and understand the concept of buying when there’s blood in the streets, it can be difficult to actually pull the trigger and invest when it seems the entire world says not to. The important thing is to focus internally on what you believe to be true and, as you said, not get caught up in the noise. Rick had Canadian bank stock that was decimated during the crisis years. Since then his shares have come back in full and increased dividends to boot. He and I both even added to our banking stock during the worst of times and it has paid off handsomely.
Keeping old publications is a great idea. I would like to see about getting a few apocalyptic magazine covers to maybe pin up on my wall beside my computer as reminders. There’s a book by Jeremy Siegel called, “Stock For The Long Run”, which gives an incredible historical perspective. I take a read through it when I’m looking for long-term market data (it covers 1802-2012, I believe).
Take care!
– Ryan
GRB,
As someone who often works with macro-economic predictions, both on a national, pan-European and international level, I can tell you that they’re wrong almost constantly. You don’t want to know how often I have to reallocate budgets because there’s more or less tax money coming in than estimated just a couple of months ago.
Focussing on what’s really important – i.e. solid businesses to me – is what we should be doing, not on the volatile and sometimes incomprehensible swings of the stock market.
Cheers,
NMW
Hi NMW,
Sounds like you have an interesting perspective on all of this! It’s really a post I’ve been meaning to write in some capacity for some time now. I just roll my eyes when I hear another prediction coming in from an “established/respected” organization which is then taken as gospel. People seem to either forget or be habitually unaware that these institutions are repeatedly wrong.
Whenever I hear a financial firm raise or lower a price target AFTER the stock has had a significant move, I cannot figure out why people would even pay a moment’s notice given that the target only moved once it was obvious there was a change in the price.
As we’ve both made note, the important thing for investors is to continue building a quality base of assets over time.
– Ryan