Owner Mentality
“People would be better off if they say, ‘I bought a business today,’ not a stock today because that gives you a different perspective on it. You don’t buy or sell your business based on today’s headlines.” —Warren Buffett
Stock markets saw positive gains during the shortened Thanksgiving week, with the S&P 500 rising 1.53% and the Nasdaq rising by 0.72%.
We often give weekly stock market performance. We don't do this because it's useful to look at weekly performance. We mostly do it because 2022 has been an unusual year in the markets, and weekly changes have often been significant (in both directions).
Prices of stocks move around much more than business results, and most investors would be better off focusing their time on the performance of the businesses they hold and only paying passing attention to the prices at which the market values those businesses from one day to the next. Howard Marks touched on this point in his latest memo:
If you ask Warren Buffett to describe the foundation of his approach to investing, he’ll probably start by insisting that stocks should be thought of as ownership interests in companies. Most people don't start companies with the goal of selling them in the short term, but rather they seek to operate them, enjoy profitability, and expand the business. Of course, founders do these things to ultimately make money, but they're likely to view the money as the byproduct of having run a successful business. Buffett says people who buy stocks should think of themselves as partners of owners with whom they share goals.
But I think that's rarely the case. Most people buy stocks with the goal of selling them at a higher price, thinking they’re for trading, not for owning. This means they abandon the owner mentality and instead act like gamblers or speculators who bet on stock price moves. The results are often unpleasant.
Taking an owner mentality can help set one up for years and potentially decades when volatility is high and prices decline. Look for businesses you’d want to own if you were buying the entire business outright. Come up with a fair price to pay for that ownership, and then wait for the market to give you that price (or better) for partial ownership by purchasing shares of stock. Then, focus on the business results to judge performance—not the daily swings of the stock price. You'll eventually be right on the stock if you're right on the business.
“One of the keys to successful investing: focus on the companies, not on the stocks.” —Peter Lynch
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Invest Like the Best Podcast: Shane Battier - The No-Stats All-Star
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