Streetwise for Sunday, September 30, 2018

Someone once wrote that the real drivers of stocks are not earnings, rather it is fear, hope and greed and to some degree the business cycle.

Discard fundamental financial analysis, an analysis of a company’s product line, understanding a company’s research and development program, customer base, supplier relationships and management expertise. What utter nonsense.

Yes, there will always be market speculators and their goals are to profit from those with less experience, or those feeling the psychologic trauma resulting from a newly wrought fear of a stock or the market.

Market speculators do not deny they view Wall Street as nothing more than a sophisticated game of chance in which they hope to hold an edge. They are not investors any more than a gambler in Las Vegas is an investor.

Unfortunately, most of what appears in the financial media focuses on making money in the short term. Not a problem assuming your main concern is keeping score, being competitive, and being sure not to lose out on whatever might give you bragging rights.

Yes, you might achieve a 20 percent return on a hot stock and in the process “discover” the next technology that is going to change the world before others do. However, do not believe you are alone in this endeavor. Countless others are focused on the same line of inquiry, thereby dramatically reducing your probability of success.

Luckily, your investment future does not depend on what happens in the short or even the intermediate term. However, it does depend on having patience in conjunction with a long-term investment strategy.

Investors are successful because they undertake the research required to make investment decisions that have a high probability of success. Vision and patience are two sides of the same coin. If you had the acumen to see the value in a company, then have the endurance and courage to ride through short-term market aberrations and vindicate your judgement.

A rule of thumb is that a corporation needs a minimum of 12 to 18 months to demonstrate whether it can deliver superior performance. Therefore, you need to allocate the same length of time for that company’s shares to appreciate.

Continual concern about your investments is usually indicative of insufficient knowledge. A more certain attitude regarding your investment decisions can only come about through research. For example, some basic inquiries into a company’s earnings history can go a long way towards increasing both your knowledge and your confidence.

However, do not ask for the impossible. Everyone wants to see tremendous financial gain with little or no risk. It is a rare person indeed who accomplishes this goal. If it happens, the credit belongs to Lady Luck. She is always welcome, but to count on her is sheer folly.

Your primary investment objective should always be to achieve returns that are more than what you will lose through inflation and taxes. Do not continually try to outperform the market. Greed can be an overwhelming and uncontrollable force.

Do not allow yourself to be caught up in what is best described as herd mentality. Distance yourself from all the noise of what might be, could be, or should be. Those who succumb to the negative rhetoric will miss great buying opportunities. And that is no way to manage a portfolio.

Yes, if you listen to the naysayers long enough, the urge to rush for the exits may become irresistible. The icy panic that grips you at the thought of your profits evaporating can be overwhelming. Investing is not always easy on the psyche.

Here is some advice: When you are fortunate enough to be passed a cookie tray, always grab a few cookies because you do not know when it will come around again. At the same time, you should always remain vigilant and cautious.

More importantly, never let others, particularly those who stand to make a commission, press you into selling off solid blue-chip stocks simply because of what appears to be a temporary 5 to 10 percent price decline. Remember, a “low turnover portfolio” is the antithesis of brokerage industry philosophy.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to