In today’s investing world, everything happens at the drop of a hat. Information travels fast and this can and does often encourage investors to react hastily. You must do everything you can to combat this natural instinct to react. Just because you see it on the Internet doesn’t mean it’s true. And even if it is, you need to be able to frame things in the perspective of your investing timeline. The longer the timeline, the less apt you should be to react (or overreact) to any given information. Time is one of our greatest advantages as individual investors; never forget that.
Take Chipotle for example. Shares were taken to the shed this year, down 30% and for good reason. The E. coli crisis has opened up a world of questions as to the company’s supply chain and greater mission of “food with integrity.” I personally own shares of Chipotle (and have for years now) and I’m absolutely concerned about the situation. But I also believe in this management team and the business that founder Steve Ells has built to date. This is his legacy and I’m willing to take the bet that he isn’t ready to go out like this.
Yes, I’ve lost some money on paper this year in Chipotle. And sure, I could have tried selling my shares and getting back in at some point. But that takes some pretty impeccable timing (far easier said than done) and it also comes at a cost in most cases with transactions and taxes, not to mention the potential opportunity cost.
I invested in Chipotle because I think it’s a wonderful business with a lot of room to grow and I want to own my shares for a long time. The company is only 22 years old and I’m excited to see what the next 22 years bring. Thanks to my timeline selling my shares never even entered my mind. It’s amazing how liberating that can make you feel as an investor and I can’t recommend it highly enough. Of course I don’t invest blindly and will continue to follow the story and if management isn’t able to right the ship and things go from bad to worse, well then I’ll need to reassess. Don’t be afraid to change your mind when the story truly changes. But for now, I’m good.
As we go into 2016, I encourage you to see yourself as a net buyer of stocks. What this simply means is that you are going to buy more than you sell. Simple. I begrudge nobody their desire to trade stocks on a daily basis; that’s what works for some and that’s great. I don’t see it as a sustainable investing strategy so I don’t do it and wouldn’t recommend it to anyone. For those of us who like to think in the context of years when it comes to investing, being a net buyer of stocks is a rewarding philosophy to pursue, but it ain't easy. As Warren Buffett so keenly observed in his 2011 letter to shareholders:
“If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.”
So as we invest in the New Year, let's work together to keep our emotions in check and buy more than we sell. It sounds like a winning combo indeed.
Happy investing and Happy New Year!