Archive for April, 2014

Proper Investing Mindset

In the first quarter of 2014, last year best performing stocks, such as Netflix, Baidu, LinkedIn, etc. experienced fairly significant corrections.  Some of these stocks declined by 10-20% or more.  That’s really not too surprising given last year gains — it is only natural for high-flyers to be more volatile than the overall market.  Note that the market itself is still sitting near all-time highs.  If and when a general market correction comes, these stocks could suffer further declines.  On the other hand, they can just as easily rebound as they have consistently done over the last year.  There is no way to know.

In this kind of environment, what should an investor do?  My answer: most likely, nothing.  I believe the proper mindset is essential in making investment decisions, namely, a mindset of a business owner as opposed to that of a holder of a nameless ticker than can be traded at a push of a button.  Suppose you own a business, or an apartment complex, and you have a hyperactive broker who calls or emails you several times a day with a current market price for your business.  Would you sell if that price happens to differ 20% compared to a month ago?  Unless you were already planning to sell it, of course not — you would instead be concentrating on growing your business and will most likely fire that broker for providing useless distractions.  As investors, we are part owners of great businesses.   Granted, the ownership stake is very small and we don’t get to make any business decisions, but nevertheless the same principle applies.  We have the best business executives working for us.  Let them do their job.

Of course, there still could be valid reasons for selling.  Two most important ones are the deteriorating business fundamentals, and identifying a better place for the money.  But more often than not, doing nothing is actually the best way.  Being active does not translate to better performance, actually it is the other way around.

April 2, 2014 at 10:38 pm Leave a comment

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Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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