2019 Stock Investors Looking Like 2007 Stock Investors

Shockingly, when an American investor holds a stock for fifteen months without receiving any capital appreciation, he is inclined to deem the investment a failure and sell it (source: “Investment Mistakes of Individual Investors and The Impact of Financial Advice”). When super-investors like Warren Buffett, Charlie Munger, and Seth Klarman state that successful investing comes down to temperament, this is what they mean. You cannot build wealth if you demand that every stock you purchase increase in value within the immediate years following investing. 

An important case study to me is that Microsoft stock traded somewhere in the $20-range every single year between 2000 and 2013 before embarking on an enormous rise to $138 per share. WIth dividends, the Microsoft investor generated 12% annual returns from 2000 to 2019 even though the 2000-2013 showed almost no capital appreciation because the P/E ratio went from 60x earnings to 12x earnings back up to 20x earnings at various points over this period of time. 

What I find terrifying for the typical investor is that the brand of investor intolerance during the 2016-2019 stretch seems to be dissatisfaction with the amount of price growth. We are now at the point where the same percentage of American households is purchasing stocks in 2019 as we saw in 2007 (a little more than half). In 2009, stock-purchasing hit a low of 31% of American households. 

All of this can be avoided by changing how you approach your relationship with your investments. You shouldn’t buy a stock and then stare at its price every day or every month waiting for it to go up. Instead, once you make an investment, you should direct your future energies to acquiring new capital and performing research for the next investment selection that you will make. Meanwhile, your prior investments should be permitted the time to accumulate and reinvest dividends and the company should be given the time to grow profits which will yield to capital appreciation over time. Fixation on the price of a particular stock (especially over a period of three years or less) is not the path to wealth. That is investment temperament 101.

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