Among many of the calmest and most productive people, there’s a common philosophy: “If it won’t matter in five years, don’t waste five minutes stressing about it today.” This is, of course, a simplification. Sometimes we have to worry about things that won’t matter in five years: life is lived in the present, and the present is where our decisions are made.
But there is a wisdom to this outlook that relates to long-term investing. The way you see the world impacts the way you live in it, and the investment philosophies you adopt have a direct impact on your behavior towards the market.
Take day traders, for instance. Day traders view each day as its own event: their aim is to make the greatest returns on a daily basis. Because news moves stocks in the short-term, day traders aim to act first when news breaks. They take a predominantly reactive stance, immediately trading off of market news, regardless of whether that news will impact the overall trajectory of the business in question.
We at Titan have many friends who are day traders, and we can appreciate what they do. But as any reader of ours knows well, at Titan, we take a very different approach. We are long-term investors. Our eyes are trained not on the windshield, but on the horizon.
Specifically, we look for businesses built on top of durable assets that can “compound” earnings at high rates of returns, over a long period of time.
Some clients may wonder, why does Titan choose to invest this way, rather than trading on short-term or macro news? Why isn’t Titan stressing about this or that breaking news?
The answer is straightforward. It comes down to our philosophy:
We believe that once you find an excellent, underpriced business -- something that is very difficult to do in its own right -- they are likely to earn excess returns vs. their peers (and the index) over a long period of time.
We believe that it is difficult to predict the macro events of tomorrow. Even the investors we have the greatest admiration for have had trouble predicting stock market bubbles, and brilliant economists have historically gotten their forecasts wrong.
Frequent trading activity decreases investment returns due to taxes and trading commissions.
Today’s media environment is designed to generate engagement, to trigger emotions, to spark a reaction. While some news stories may impact the fundamentals of a business, they tend to be insignificant in relation to the overall trajectory of the business. This doesn’t mean we don’t pay attention to daily events. It means we sift, assess, and digest relevant news, within the context of our ongoing research and our theses.
To succeed as long-term fundamental investors, we focus not only on deep-dive fundamental analysis, but also on having the emotional stability to navigate the volatility and constant noise of the markets.
We believe that honing the ability to control one’s emotions and ignore market noise is what separates the great long-term fundamental investors from the merely good.
In investing, there is no “correct” philosophy, but this is ours. To each their own.