As I was writing this, I got an email from a client saying, “Your move, boss.” So here is our move.
I can only characterize our “move” as just another day at IMA. We are going to continue to seek out what we always look for globally – high-quality businesses that we can buy at a significant discount to fair value. We are prepared for the possibility that every decision we make today will look “wrong” tomorrow, as we have no idea how long the market decline will continue; and we are completely fine with that, as long as these decisions are proven right several years out.
Our focus is zoomed out from this or the next quarter – where our vision is fogged – to years ahead, where paradoxically we have a lot more clarity.
Writing this, I was staring at the screen for about an hour, struggling to say something I haven’t said before, and that you haven’t heard before, about our approach and why sticking to it is so vital for our success. Then I stumbled on a column by the wonderful Wall Street Journal columnist Jason Zweig, titled “What Benjamin Graham Would Tell You to Do Now: Look in the Mirror.”
Jason gives us some advice gleaned from Ben Graham (the father of value investing):
Forget about what the stock market is going to do. Instead, focus on what you, as an investor, ought to do….
First, determine whether you are an investor or a speculator. “The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices,” Graham wrote. The speculator, on the other hand, cares mainly about “anticipating and profiting from market fluctuations.”
If you’re an investor, “price fluctuations have only one significant meaning,” according to Graham: “an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage,” warned Graham. He “would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by otherpersons’ mistakes of judgment.”
The primary reason many individuals fail as long-term investors, Graham said in 1972, is that “they pay too much attention to what the stock market is doing currently.”
As I read the above, I felt blessed to belong to the wonderful world of Ben Graham. Despite all the chaos and panic out there, Ben helps us put everything into the right perspective and maintain great clarity.
The prices you see on your screen today are the transitory manic depressive opinions of the often mentally unstable Mr. Market. (If I have offended Mr. Market, my apologies). Mr. Market did not carefully value your companies today and decided that they are now worth less. No, he woke up in a grumpy mood and indiscriminately marked them down as if they were overripe bananas at the grocery store. (You cannot have enough metaphors here.)
The stock prices on your screen say nothing about what these companies are worth. Nothing at all. But that is all that is going to matter in the long run. I promise you one thing: The value of your companies doesn’t change 8% a day, day after day.
It is easy to look at the current decline as a curse – it is anything but. We should regard it as a blessing. (I know it is hard to do this right now.) But if we look past today and tomorrow to a few years out, we can expect to see that this sell-off provided us the opportunity to add to existing positions on the cheap and add more high-quality but undervalued stocks to our portfolios.
I read a saying a while back: You make most of your money during bear markets; you just don’t know it at the time.
P.S. This is a great time to revisit the Six Commandments of Value Investing – a chapter from my future (yet, still unfinished) book, where I discuss Ben Graham’s principles of value investing in depth. You can read the chapter here or listen to it here.