Perhaps, I shouldn’t call them ‘stocks’. I prefer to call them ‘businesses’. That allows me to think like a business owner and, subconsciously, hold it longer.
When you bought into a business, I assume that you have done your homework diligently such as assessing the quality of business and managers as well as financial ratios and other pieces of information that crystalise your final decision to invest.
With that, I presumably conclude you are quite comfortable with the existing managers. Since you have trusted the management’s candidness and capabilities, I honestly think that, as a shareholder, it is not necessary for us to track every single activity that is concerning to business itself – be it the prices of the commodities which are going to affect the company’s bottom line or putting too much concerns on quarterly performance of the business.
Generally, it is good to track quarterly performance. But from my own experience, I feel it is much better to track full year result rather than quarter to quarter result.
Why? Some businesses are cyclical or seasonal while others are more predictable on the quarterly basis. Should you track closely every single company on a quarterly basis, cyclical (shipping, property, etc) and seasonal (travel, agricultural, etc) business will undoubtedly disappoint you from time to time.
I recount a story from my recent investment experience.
A road construction business, which our company vested in, had lost numerous contracts consecutively during the tendering process and the bottom line shown on their quarterly statement has not been encouraging too.
The nature of business is not as predictable when compare to a healthcare business. As such, the company needs to constantly bid for new projects. Thus, revenues and earnings are foggy in mid to long term. At least, the only feasibility I could see is their large chunk of order books which could sustain them for a couple of years.
A decision was needed during the discussion. But gladly, no action was done.
As a result of constant tracking, naturally, the pressure to do something is inevitable. Thus, it stimulates more activities and often classified as a common mistake when it comes to value investing.
There is an analogy shared by Warren Buffett in an video interview:
If you bought a farm, and there is a farm channel (CNBC) that tells you every five to ten minutes on weather condition. And if it says that it is going to rain in the afternoon, you will start worrying how the rain will affect the farm and how the soya bean prices will fluctuate next week. You got to make a decision. That stimulates activities.”
If you hold ten businesses, then multiply the time spent tracking on each business by ten. That creates unnecessary works and time spent (the most scarcity resources on planet Earth).
Most retail investors, because of other commitments, do not have so much precious time to do such works. So why bother? Not that we don’t care about the business we invested in, but our ability to put our faith in the management’s capabilities is questionable. Since you have allocated the capital with them, leave the expertise to them.
Good and capable managers will, more often than not, take necessary precautions and change strategies (if needed) should challenge arises. That’s why it is really important to assess the quality of the managers before you put down any hard-earned money into any investment.
By the way, I really love investing because it is really passive (once research work at initial stage is over). It does not require me to be on the ground to run the show. Even I am a full time investor, I constantly allocate my time to search for new good businesses and sometime I spend my time to understand more on existing businesses which we already owned.
Investing is going to be difficult if you track every single thing and you will get nothing in the end but confusion. I am not saying that you shouldn’t track business performance but by reading annual report and attending Annual General Meeting once a year should be sufficient. Rather than worrying things you have little or no control, why not spend the fruitful time with your loved one?
This article is originally posted at MillionaireInvestor.com Rusmin Ang, the investment rocket man. Rusmin is an investment analyst at 8 Investment Pte Ltd. He specialises in unearthing high-growth, small-capitalisation companies. Currently, he co-manages a private equity fund of over $5 million. Rusmin is a former SIAEC scholar who gave up his scholarship to become a private equity fund investor. He also has a rather expensive dream of travelling to space one day.
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