Money-lust
“Money-lust has always existed, but not in the history of the world was it ever a craze, a madness, until your time and mine.” —Mark Twain
Stock market indices again saw modest declines on the week, with the S&P 500 falling 0.13% and the Nasdaq falling 0.7%.
It was a week that has felt like most weeks lately. Some inflation data got a few headlines—it was a bit stronger than expected, and yields increased slightly. And there was a lot of talk about AI and Nvidia, and a lot of options traded on AI stocks (especially Nvidia). As The Wall Street Journal reported:
Options trades tied to semiconductor stocks made up 42% of activity pegged to S&P 500 companies in February, according to Goldman Sachs. That includes stocks such as Nvidia, Advanced Micro Devices and Micron Technology. The heavy trading has continued in recent weeks ahead of Nvidia’s widely anticipated technology conference.
Most options expire worthless. But given the leverage, those who want to make a lot of money quickly tend to be drawn to them, especially in speculative markets. Using options with too much capital probably isn’t the most intelligent way to invest your money, but many people seem to be doing it today.
In times like this, it’s a good time to step back and ensure you’re taking the right approach—given your particular life stage and goals. Some people may be okay taking a risk of losing most of their money in the options market, or buying AI stocks without considering the valuations being paid for those stocks.
But for most people, taking a long-term, intelligent approach to investing is what they’re looking to accomplish. And there are few better words to read to help one take that approach than those of Warren Buffett. As he wrote in his 1996 Annual Letter to Shareholders:
Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices.
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards—so when you see one that qualifies, you should buy a meaningful amount of stock.
Simple but not easy—that describes the process for successful long-term investing. In today’s market, many people seem to have forgotten the “at a rational price” part of Mr. Buffett’s quote above in the lust for a quick buck. But over the long run, figuring out the right price—the not easy part—keeps one’s portfolio value marching upward.
“There are two times in a man’s life when he should not speculate: when he can’t afford it, and when he can.” —Mark Twain
Tweets of the Week
In Case You Missed it…
Conviction and Quality - by Josh Tarasoff
Inflation at the Grocery Store - by Ben Carlson
Martin Fridson on WealthTrack: Picking Top Stocks (video)
Invest Like the Best Podcast: Anne-Marie Peterson - The Capital System
Talking Billions Podcast: Thomas Chua: Steady Compounding
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