Watching The Stock Market

July 25, 2007 by Joe Ponzio

Buy stocks as if you were buying the entire business. That has been a cornerstone of Warren Buffett’s investment philosophy for more than fifty years. Sure, he’s traded stocks and engaged in arbitrage. Still, his largest long-term gains have come from owning wonderful businesses, regardless of whether or not the stock market told him so.

I recently revisited The Intelligent Investor1, Benjamin Graham’s book on value investing. If you don’t know Graham, he is an investing legend and Warren Buffett’s mentor. Studying the masters is not a bad way to learn how to make money. Graham had this to say about watching the markets:

The true investor scarcely ever has to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.

Graham Translated

The prices in your stocks will swing up and down based on the actions of others. When more people are buying than selling, your stock will go up. When more are selling than buying, your stock price will drop. The activity is based entirely on the perceptions and judgments of other investors and traders.

Remember what Buffett said:

A public-opinion poll is no substitute for thought.

and

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.

Don’t let traders and gamblers influence your decisions. Instead, make your decisions, then let the traders and gamblers fight to see who will sell you the most value for the cheapest price.

Then, go have some fun doing things you really enjoy.

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