Do Good Work

There is nothing more Free Market than failure. Bail-outs etc. are “third way” interventions where Government steps in. Particularly bad if they only step in when there is failure, and do not share in the up-side. A danger of basing your investment philosophy on a dance around what something is worth, rather than what it does, is that price and value can disconnect massively. It is particularly dangerous if you “bet” more than 100%, or are naked (have a position in something you do not own). You can trade anything with a pulse, the underlying thing does not matter as much as the person (legal or real) you are buying/selling from/to. You can leverage up a horrible asset to make great profits (until things go wrong). Investment is different. A basic principle of fundamental investing is that what you do matters. It is not gambling. It is capital allocation and problem solving. Shifting resources to where they are doing good work, and continuing to do good work over long periods of time. No one can force you to sell if the business is strong enough to carry on doing its work.

Behaviour Penalty

If something is free, you are not the client. You are the product. The same is true with the Stock Market. You don’t “play” the Stock Market. It is not a game. It is true that Traders can trade anything with a pulse with no regard to what it refers to. The “fundamentals are free”, because the product is the other people who are trading. If you are “playing”, you are playing against some of the most sophisticated and resourced poker players alive. Investing is different. There, the fundamentals matter. You are buying a slice of ownership in an underlying business. You can’t get played if you have a long-term horizon. Then what matters is the quality of the offering, culture, management, and people in delivering their problem solving. What matters is the strength of the company to endure through difficult times. To emerge. In a dynamic world where they have to respond to a changing environment. You don’t have to respond. You can sit on your hands. The “Investor Behaviour Penalty” is a well-studied phenomenon where the average investor underperforms the thing they are invested in, by second guessing and buying in and selling out at the wrong times. Sometimes, the best thing to do is nothing.

Don't let the smile fool you