There are many that consider the stock market the big casino. Because I believe in adhering to a business perspective on investing in common stocks, I am not one of those people. To investors like me, the stock market is simply the store that we shop at in order to buy (invest in) great businesses. Consequently, I have trained myself to be stock market agnostic. Since I do not like to gamble with my money, the big casino, short-term-oriented, active-trading-mentality does not appeal to me.
Although I cannot say with absolute certainty, anecdotal evidence suggests that long-term “invest in the business and hold” investors may be in the minority. My minority status thesis certainly seems to be supported by what is most commonly offered on most financial media outlets such as CNBC. The financial press, especially on television, is clearly focused on reporting and discussing short-term price volatility.
Every day we hear how the markets are up or the markets are down today X percent, but there is very little discussion or coverage about intrinsic value. As I previously admitted, I may be wrong about that, but it sure seems to me that the financial media tends to pander to the active, shorter-term focused trader mentality. As a result, it appears to me at least, that the conservative long-term investor is somewhat neglected. Since the media is primarily rewarded based on ratings, it seems logical to conclude short-term market players are where the action must be.
Frankly, I find this disturbing because I believe that it supports and even promotes a more speculative approach over a more prudent and conservative long-term approach to investing. The reason I am disturbed is because much of my writing is oriented towards investors in or near retirement, and I believe that the more prudent and conservative long-term approach to investing is most appropriate to those kinds of investors.
16 Meaningless Market Phrases That Will Make You Sound Smart On CNBC
Therefore, I was quite gratified when a reader of one of my most recent articles found here posted a comment with a link to an article in Business Insider by renowned financial blogger Henry Blodget, cofounder, CEO and Editor-In-Chief found here that challenged some of the dribble that commonly propagates the financial media. The article was titled “16 Meaningless Market Phrases That Will Make You Sound Smart On CNBC.”
I loved the article and I am in total agreement with 15 of the 16 meaningless market phrases that Mr. Blodget exposed. Actually, I am in agreement with all 16 of the phrases that were exposed if they are applied to the short-term mentality that I discussed above. Like Mr. Blodget, I feel these phrases are meaningless because they are typically vain attempts to sidestep ignorance on the part of those that love to spout them.
The truth is, when they all relate to short-term market price movement, they are profoundly misleading. Since I strongly believe that no one can predict the short-term price movements of the market, or individual stocks for that matter, I believe these catchphrases are thrown out as attempts to cover up the reality that those stating them simply in reality have no clue.
Additionally, and apparently like Mr. Blodget, I believe that all of the meaningless phrases he was exposing universally relate to the short-term trading mentality, except one. To be clear, I am saying that there is only 1 of the 16 meaningless phrases that can be appropriately utilized and applied by the prudent long-term investor.
And frankly, when it is properly applied from a long-term business investing perspective, I believe it is one of the most meaningful and vitally important concepts that the prudent long-term investor can have. So much so, that I believe that every prudent long-term investor should start out every investing day by chanting this long-term investing and quite meaningful phrase, as I personally do.
It’s Not A Stock Market. It’s A Market Of Stocks
The phrase “It’s not a stock market. It’s a market of stocks” is extraordinarily meaningful and I argue quite profound to the long-term business perspective investor. It’s important because it empowers the prudent investor to take their focus off of short-term stock market volatility, which is unpredictable and therefore unknowable, and instead place their focus on the merits, benefits and future potential of the individual businesses that they personally are partnering with.
In the long run, the stock market has very little to do with the results that a shareholder of a great business will earn. In the long run, the successful operating results of the individual business invested in will drive shareholder returns. Consequently, prudent long-term investors should not be worried about what the market may or may not do in the short run, but they should be very concerned about the future operating performance of the businesses they are invested in. Common sense would indicate that their future returns will be a function of the success of the business they are owners of, and independent of the overall stock market.
Here is the excerpt from Henry Blodget’s article where he talked about: “It’s not a stock market. It’s a market of stocks.” This is one of my favorite and meaningful phrases for the long-term oriented investor. But clearly, Mr. Blodget was critically citing this phrase from a short-term perspective, which is clear if you read his statement carefully.
“It’s not a stock market. It’s a market of stocks.
When to use it: Anytime.
Why it’s smart-sounding: It sounds deeply profound–the sort of wisdom that can only be achieved through decades of hard work and experience. It suggests the speaker understands the market in a way that the average schmo doesn’t. It suggests that the speaker, who gets that the stock market is actually a “market of stocks,” will coin money while the average schmo loses his or her shirt.
Why it’s meaningless: Because it’s a statement of the obvious. Of course it’s “a market of stocks.” But it’s also a “stock market.” And viewing the stock market as a “market of stocks” doesn’t help you in any way, other than reminding you that all stocks don’t move up and down the same amount.”
However, when this phrase is more appropriately referenced from a long-term perspective, it provides an extremely meaningful and important principle and perspective. It’s not just about whether or not a stock might move up or down relative to the market, instead, this phrase is really about understanding the many important and numerous differences between the companies that make up the overall market.
My primary point being that there are common stocks of companies within the market that dramatically outperform the market over time, some that underperform the market over time, and everything in between. Some of these performance differences are so extraordinary that it should become obvious that it is not the stock market that truly drives long-term returns.
Undoubtedly, over the short run, stocks will move up and down in relative concert with what the market is doing. However, longer-term, the truly great businesses separate themselves from the pack in extraordinary ways. Conversely, the same is true with very poor or weak businesses. They also separate themselves from the pack, but usually in the wrong direction.
In order to more clearly illustrate my point,