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Here's the Most Important Takeaway From the Greek CrisisBy
Friday, July 17, 2015
What most people call "news" is really just "noise" to investors.
The majority of what's in the Wall Street Journal, the Financial Times, the New York Times, and TV news channels is really just noise. People pay too much attention to this noise. They buy and sell stocks based upon it.
That's a big mistake.
Instead of building a portfolio of great businesses that compound for decades, people wind up selling at the slightest sign of trouble, based on the noise of the moment. Often, they lose money because of it.
You see, big returns take longer to develop than most people allow. You don't generally make several times your money in less than several years. It takes patience.
Let me show you what I mean...
Last month, I spoke about long-term investing at the Bonner & Partners Family Office Global Partners' Reunion in Baltimore, Maryland.
I also listened to a presentation by Chris Mayer, editor of the popular Mayer's 100x Club newsletter (previously called Capital & Crisis). Chris is a friend, value-minded investor, and master at recognizing, understanding, and controlling risk. Chris spoke about making 100-to-1 returns in the stock market, which included a favorite side topic of his, "the coffee-can portfolio"...
The big lesson I took from Chris' talk is this: There's no noise in a coffee can.
It sits out of the way, under the mattress, untouched for years, ideally for decades.
It doesn't read the news. It doesn't have any political viewpoints to share. It couldn't care less what's going on in the world.
All that matters for a coffee-can portfolio is that you fill it with good businesses that have long-term growth potential, regardless of "noise."
Today's loudest noise comes from Greece. It's impossible to ignore the awful din of it.
The stock market was down on news that Greece was in trouble. But now, the market is up on news that everything's OK.
That's why, as tragic as the current situation is for the people of Greece, it shouldn't have any influence on your investing decisions. Let me explain...
First, consider the size of Greece's economy...
Greece's gross domestic product (GDP) was around $238 billion two years ago. It has contracted a lot since and is likely less than $200 billion today. That's smaller than about half of all U.S. states. One has to wonder if Oregon – with its roughly $229 billion GDP – could create as much noise as Greece.
Germany is the largest economy in the European Union (where the euro is the currency). As of 2012, it alone accounted for roughly one-fifth of the European Union GDP. Germany, France, Spain, Italy, the Netherlands, and Switzerland combined make up about 65% of European Union GDP.
Greece accounts for less than 1.5% of European Union GDP.
You shouldn't lose sleep worrying about 1.5% of the economy behind the euro. It's unlikely that economy was ever healthy enough to back a major currency to begin with, which I bet every decent currency trader has always known. So if you're getting worried about it today, you're late to the party.
I have to conclude that a Greek exit from the euro would have no long-term effect on a well-selected group of stocks in a coffee-can portfolio.
Also, I recommend you stay as far away from playing "global events trader" as you can. It's difficult for even veteran traders to "play" global political and economic events with expertly timed stock ideas. Ignore anyone who suggests otherwise.
If political and other macro events were so important, the world would be filled with billionaire political analysts and economists. It's not. That's not where you make the money. Billionaires are mostly of entrepreneurs and great bottom-up investors.
So when it comes to investing decisions, let Greek noise fill Greek ears, not yours.
Stop listening to the noise and start building a portfolio of great businesses you can hold indefinitely.
According to the classic book Triumph of the Optimists, by Elroy Dimson, Paul Marsh, and Mike Staunton, U.S. stocks appreciated 1.5 million percent in the 20th century. Wars, influenza outbreaks, the Dust Bowl, the Great Depression, inflation... you name it, it happened in the 20th century. And still, U.S. stocks were up 1.5 million percent.
The coffee can's active stock picking and silent, passive compounding trumps most of humanity's noise.
Huge returns take time... But you don't need to wait a century. For example, Apple (AAPL) has risen 100-fold in just 14 years. It's a 286-bagger since 1980.
Most investors don't hold stocks long enough to earn big multibaggers. Based on New York Stock Exchange (NYSE) turnover figures, the average holding period for stocks is about 18 months. That won't cut it.
Even the three- and five-year holding periods you often hear from hedge-fund managers aren't adequate.
You need to hold for 10, 15, or more years to make multibagger, coffee-can-style returns.
Selling at the onset of loud market noise is likely one reason folks can't tolerate holding stocks for the long period of time necessary for big, compounding returns. Based on the "noise of the moment," they get scared (needlessly, most of the time) and change their portfolios before the true compounding can accrue.
"A watched pot never boils," and portfolios are watched minute by minute in the age of mobile Internet connections.
Investors should put down their cellphones, stop getting up-to-the-minute stock quotes, and re-style themselves after Warren Buffett, who once wrote...
"Lethargy bordering on sloth remains the cornerstone of our investment style."
In sum, don't worry about Greece or similar noise. Instead, develop a bias for long-term holding of well-run businesses with great upside potential.
Good investing,
Dan Ferris
Further Reading:
Earlier this month, Brian Hunt and Ben Morris showed Growth Stock Wire readers why the Greek issue has not changed their bullish thesis on European stocks. They say that "it's just noise in the bigger picture." Learn why here: Our Take on the World's Biggest Financial Story.
For the past several years, Dan has urged his readers to buy world-class businesses. These businesses gush free cash flow, reward shareholders, have great balance sheets, earn consistent profit margins, and have high returns on equity.
Market NotesTHIS CLASSIC "SPENDING STOCK" JUST HIT A NEW HIGH Today's chart provides more proof that "things can't be all that bad" with the U.S. economy...
In DailyWealth, we like to use the market's clues to get a sense of what's really happening. Last month, we showed you the bull market in expensive clothes, expensive movies, and expensive art. Another interesting gauge for the U.S. economy is the surging share price of the world's largest cruise line, Carnival (CCL).
Carnival is a classic "spending stock." If the economy is in the tank, folks won't have much money to spend on Caribbean cruises. If the economy is doing well, they'll be more willing to shell out plenty of money to party on the seas.
As you can see from today's chart, the market suggests the economy is chugging along just fine. Carnival shares have climbed 42% in the past year... and struck a new 52-week high this week. The market's message is clear: If the world's largest cruise operator is enjoying solid profits and a soaring share price, "things can't be that bad."
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