In the Long Run

We're back.

And so is the stock market apparently. Above 13,000. Great!

I know I didn't post anything on thursday or friday, but you didn't miss anything.

As a forewarning, this article does not recommend any stocks, but it discusses my personal philosophy on the stock market. So, if you're looking for a stock pick (like an undervalued financial), you'll have to hold off for a little bit.

Anyway, unlike the rest of the people at ICM (and most of the people who write about stocks), I'm a guy who focuses on the short term. Now, I don't mean week-to-week - although I've done that a few times and it has been fun. I mean the 12 to 24 month time frame. I can't tell you how many of my friends have always told me "BUY AND HOLD" every time I tell them one of my stocks has gone up 20% and I'm thinking about selling the position.

I cannot tell you how irritated I have become reading story after story about Warren Buffet and how successful he has become. Don't misunderstand me, every person who has ever held a share in any company, including myself, has a tremendous respect for Warren Buffet. But they use him as the ultimate (and sole) example of the buy and hold strategy.

What if you bought and hold MBIA, which is now down 83%? Or AOL, which used to up thousands of percent and now is now essentially non-existent? What about if you bought and held Nasdaq index at the height of the dot-com era? You would still be down. The employees of Enron believed in the buy and hold strategy and how much did they lose?

I think market interactions is one of the most interesting things to which I have dedicated by time. I can't even begin to describe how much I enjoy tracking fluctuation in cocoa futures and understanding its influence on Nestle's bottom line. I'll run correlations between Monsanto and oil prices, while checking up what the current inflation landscape is at the countries which buy oil. When a company goes under, I'll try to figure out who it bought from, sold to, and competed with to figure out what stocks are going to fluctuate as a result.

What I just said above tends to scare people. Do you really need to know all of those things? No, probably not. I just like looking at those things. Warren Buffet isn't the richest man in the world because he wanted to make money. The man lives in Omaha in a 10 room house. He doesn't invest because he wants money. Warren Buffet just enjoyed business. He started out by fixing an under-performing paper mill and then used money to invest. Bill Gates was a guy who liked computers and then used his initial success to expand his business. I'm just a guy that likes looking at how markets interact.

Most people aren't in the stock market because they like tracking cocoa beans and doing advanced statistical analysis on oil prices. They're in it for the money. So if your in it for the money, don't buy and hold.

Why?

Because in the long run...we're all dead.

Money is something you use in the present. If you know the reason why a company is going to continue to go up, by all means, hold onto it. But if you think it could go down, why bother? Find something else. Hawthorne said that families are always rising and falling in America. The same is true for businesses. Why let your portfolio fall? You're not in it to prove a point or to explore market interactions. Never forget why you invest and you're likely to rise instead of fall.

-Mansij Hans
Member, Intigril Capital Management