The “hissy fit” has continued into the first part of the new year. As of this writing, the major market indices in the U.S., and the world, have gotten off to the worst start ever. This is giving fodder to all those pundits of perpetual pessimism in the media who are clamoring to pronounce that the “sky is falling”. We would emphasize that this is not the first time we have witnessed reactions like this from both the mainstream financial media and the “experts” they traipse onto their stage 24/7 offering suggestions for the “trade of the day.”
While market drops are never comforting, these periods serve to reinforce the mantra we have preached for years that one must be an investor, in the truest sense of the word — not a trader, speculator or gambler, with respect to the way money management is viewed– if one is to maintain their sanity when facing the inevitable gyrations that the market and, for that matter, the economy will bring. Unfortunately, today the markets are more and more driven by phenomena that have little or nothing to do with the conducting of business and more to do with schemes that attempt to “game” the market. Contrived mechanisms that attempt to steer one away from the natural ups and downs that occur in something as dynamic as business activity and ensure long term success at the same time are nonsense! Thinking in terms of “macro trends”, arbitrage, liquid alternatives, synthetic instruments, hedging risk, high frequency trading, and on and on… just misses the point of real investment.
Investors (those who provide capital to an enterprise in expectation of a future return) are best served to be thinking solely about the enterprise in which they are investing, and its prospects for success. At its core, this is not complicated. However, in recent years (and maybe decades), we believe too many investors have been focused on almost everything except the enterprise to which they have entrusted their capital. They have become further and further removed from the enterprise that is actually benefitting from the use of their capital and in many cases are not even invested directly in a business enterprise. This has transpired through the use of intermediaries, at best, and downright instruments of financial engineering that don’t even ultimately result in the financing of a business entity but are truly schemes “betting” on the outcome of a particular event, at worst. If you are an investor reading this piece, ask yourself, “what enterprise has ultimately received my capital investment and how are they using that capital to ensure I receive a future financial gain?”
Some would argue investing in public companies does not provide capital to the enterprise itself as it is a “secondary” market for shares in that enterprise. That is not accurate because the capital that was originally invested in the enterprise is simply now yours, as transferred to you by the original investor. It is still capital used in the function of the enterprise. When you have no idea if you have invested in an enterprise or enterprises (hopefully you are diversified), or realize you have bought into the hype that there is a way to “game the system” and come out on top, then we suggest you change your approach immediately.
As the cries of doom ring ever louder, those who have our suggested approach will be able to look past the noise and know that what China, Greece, The Fed, Dubai (remember that one?), emerging markets, the Yen, the Dollar, the Euro, the Eurozone, the price of oil, Ireland, Iceland, liquid alt funds, ETFs, Italy, Brazil CDOs, CMOs, CLOs, CDSs and all the rest of the buzz-terms that are used as the “debacle of the day”, will not derail their solid long term plan. Why is that? Because businesses such as Stericycle keep picking up medical waste, Ecolab keeps on cleaning the toilets in restaurants, Nvidia keeps powering the graphics on your computer screens, Amazon keeps being Amazon, Apple keeps you using your thumbs, Verizon makes sure you connect your iPhone, Echo Global Logistics makes sure your packages arrive intact, Edwards Life Sciences makes sure your heart keeps ticking, and Middleby ensures your pizza gets cooked right!
