The Rational Investor #033: William Green on Ignoring the Noise
Happy Saturday to you,
Welcome to the 33rd edition of The Rational Investor Newsletter.
I received a lot of great responses to last week’s quote from Richer, Wiser, Happier by William Green, so I thought I’d share another one from the same book, but this time on the topic of “ignoring the noise.” In the quote below, he’s referencing investor Joel Greenblatt of Gotham Capital (my favorite firm name).
Onto the main event…
Here’s William Green/Joel Greenblatt on Ignoring the Noise:
“Many investors get rattled when they read the latest news about, say, a Greek debt crisis that threatens the European economy. But Greenblatt says, “The way I look at it is, if I own a chain store in the Midwest, am I all of a sudden going to sell it for half of what it’s worth because something bad happened in Greece? I don’t think so! But that’s what you read in the newspaper, and that’s what everyone is looking at. If you have a context to say, ‘Well, does it matter or doesn’t it matter?’—it’s just very helpful.”
Indeed, you start to realize that much of the investment world is engaged in fruitless nonsense. Wall Street economists and market strategists pontificate about macroeconomic headwinds and tailwinds that nobody can reliably or consistently predict. Media pundits muse about the significance of short-term price fluctuations that are random and meaningless. Highly intelligent analysts at brokerage firms squander their time calculating next quarter’s corporate earnings to exact penny—an absurd guessing game that’s irrelevant to successful, long-term investors.”
In full disclosure, I was tempted to “bold” the entire second paragraph because I think it’s so important to understand and worth reading a second time.
Because if you talk to a bunch of investors, you’ll inevitably find that 99% are paying way too much attention to things that have no long-term relevance whatsoever. It should be obvious that short-term forecasts of every sort must be of exactly zero value to us as long-term investors. Unfortunately, these forecasts are big business and encourage much foolish behavior.
Whenever you’re tempted to make changes to your portfolio, I encourage you to think about Greenblatt’s note above and remember that almost nothing that happens in the short term matters in the long term. Time is, and always will be, the greatest edge that we have as long-term Main Street investors, so we’d be wise to ignore the noise.
Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.
**********
Whenever You’re Ready, Here Are 3 Ways I Can Help (For Financial Advisors Only):
If you’re interested in starting a client newsletter, I wrote an article on Michael Kitces's blog about the value of email newsletters and how you can do it effectively in your practice. Here’s a link to the article.
If you’d like to make publishing a high-quality client newsletter as easy as possible to better leverage your time and resources, click here to learn more about our Client Memos membership.
If you have a question about client newsletters or anything advisor-related, feel free to reply to this email, and I’ll do my best to answer it.
