In honor of my oldest son’s birthday today. He has practiced good investing habits and careful money management from a young age. Now he is the ripe old age of 26:
A lot of people seem to lose all common sense when investing in the stock market. They think of the stock market as some mysterious phenomena that is only understood by a few wizards who have ancient, secret code books to follow and magic spells to manipulate it. Thus, they guess or try to learn fantastic formulas to give them great power in stock market rituals. In reality, the stock market is very similar to the grocery market, and it is the customer who has the power by choosing where to shop (assuming a reasonable degree of freedom and law in the land).
So, what is the best way to shop for groceries? It is a balance of finding a product of agreeable quality for a price that can be afforded sold by a merchant that is fairly reliable. Most of the time, we don’t travel to every local store every time we want to shop. That would be very time consuming AND we pay extra fees in the form of fuel costs. Once we have learned our way around a community, we find 2-3 grocery stores that consistently do their job of giving us good results. Their ability to do this is because of good management.
We don’t have to shop there every day to have a good idea of what to expect. Because we have an idea about the quality of the store, we go back expecting it to be about the same. When there are changes, they are often for the good. If we don’t like the changes, it’s still not usually a large, drastic change. The management is going to want to only make changes in ways that are good for the company and keeps customers coming back.
It only takes a little bit of grocery shopping experience to discover that prices fluctuate! The wise shopper knows this depends on availability, what is in season or popular, and even politics. However, we will generally continue to shop at the same store because these are forces that affect all of the grocery stores. We will tend to wait to buy when the prices are to our advantage, getting the most possible use of our money.
We might not be particularly good at choosing the best stores or products when we first begin grocery shopping for ourselves, but we learn how to evaluate. It doesn’t take too many inedible pieces of fruit or products that go bad, to make us realize what we need to be looking for. Also, if we have chosen a grocery store with dependable management, we will have less trouble trying to make sure of those choices. We will be able to shop with some certainty of getting good products.
If you want to buy fun food once in a while, you know the benefits are nil or minimal. Short sugar high or extra calories to burn off with exercise. It’s not a major part of a healthy, diet. Enjoy it, but don’t count on it to do you any good.
So the moral to this little metaphor is that if you choose a few good companies on the stock market to invest in, you don’t need to worry about constantly and frantically evaluating them. A good company remains a good company for a long time. Companies without substance to them are interesting, but usually don’t give good results. A lot of buying and selling is like going to lots of grocery stores every day, even multiple times a day. You can’t get anything else done! Unless it is your full time job to run a grocery store, or a corporation, there is other business you need to be engaging in.