Too Soon
“I made my money by selling too soon.” —Bernard Baruch
“If I’ve made one mistake in the course of managing investments it was selling really good companies too soon. Because generally, if you’ve made good investments, they will last for a long time.” —Lou Simpson
Stock market indices had their third winning week in a row. The Dow, which again closed the week at an all-time high, was up about 0.6% during the week, as was the S&P 500, which touched a new high on Thursday before seeing a slight decline on Friday. The Nasdaq rose about 1% for the week.
China’s stock market indices are also worth mentioning. The country announced major stimulus plans and stocks had their best week since 2008, with major indices over there rallying between 12.75% and 15.7%.
The quotes that began this section may seem contradictory: Are more mistakes made by holding on or selling too soon?
Yes. That is the unhelpful answer.
Sometimes, markets get to extremes—such as in the late 1920s (in Baruch’s case) or the late 1990s—and it’s a good time to get out before everyone else heads for the door since you can never know when the tide will go out, and markets tend to take the proverbial “stairs up and the elevator down.”
Sometimes, it’s best to ignore the market and stay invested for the long run. This is especially true if you are younger and have a long runway or if you are invested in quality companies that can grow for decades.
As with so many things in investing, context and individual circumstances matter. Probability and payoffs also matter because the future is filled with many potential outcomes, even though only one of those potential outcomes will be realized.
Many investors today are once again buying and bidding up stocks related to artificial intelligence. We’ll see in due course whether or not holding them for a while or selling them now will prove to be the better choice. But in his Q2 Commentary, Oakmark’s Bill Nygren offered the following warning:
There have been two technologies in my career that seem similar to the artificial intelligence (AI) excitement boosting tech stocks today – computers and the Internet. When I was in business school in 1980, there was so much market interest in the computer manufacturers that IBM was the largest market cap company, and the industry was referred to as “IBM and the Seven Dwarfs” (Burroughs, UNIVAC, NCR, Control Data, Honeywell, General Electric and RCA). Suffice it to say that profits from computer manufacturing disappointed for all eight companies. Then in 2000, amidst “dotcom” hysteria, the largest cap Internet companies were Cisco, America Online (AOL) and Yahoo!. AOL and Yahoo! ended up nearly worthless, and Cisco, at a lower share price than in 2000, has lost 80% relative to the S&P 500. We think these results should give pause to anyone believing the AI winners have already been determined.
Tread carefully, be aware of the risks you are taking, and stay humble. Even the things we are most confident about sometimes turn out differently than expected.
“Even the world’s greatest business is not a good investment if the price is too high.” —Lou Simpson
“The key to dealing with the future lies in knowing where you are, even if you can't know precisely where you're going. Knowing where you are in a cycle and what that implies for the future is very different from predicting the timing, extent and shape of the next cyclical move. And so we'd better understand all we can about cycles and their behavior.” —Howard Marks (“You Can't Predict. You Can Prepare.”)
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