Investing in super-slow motion

TPG Telecom showed again this week why successful investing requires a long-term focus and super-human patience.

Despite how it sometimes looks, sharemarket investing is a game played in extreme slow motion. Business cycles and strategies play out over years and decades, yet we crave information about the companies and stocks, comment on them and judge them on a daily basis (or less).

At times it feels like watching a football match slowed down so it stretches out for years, yet the commentators are running in real time. Sometimes a few general trends can be picked out – and occasionally a goal might even be scored – but mostly it’s just commentators filling the airwaves – I think he might get to the ball, but it is a little way in front of him, and remember he has a sore left knee from that tackle we saw three years ago. If you can imagine gambling on that, then that’s roughly what the stockmarket looks like.

Hubris

In a vacuum of real success or failure, investments tend to be judged by how their prices have moved in the market. When stocks rise all the bulls give themselves a pat on the back and the bears clam up, and vice versa when they fall.

We saw this in the dotcom boom, when countless businesses were judged on their soaring share prices, rather than any real business success, before history eventually delivered its verdict. Human nature being what it is, it’s easy to fall for such hubris; and this is why share prices often overreact.

We saw the reverse in action with TPG Telecom (ASX: TPM) this week. As Gaurav Sodhi explains in our update on TPG’s move into mobile, it will be many years before we can confidently pass judgement on the plan.

The market offered its initial negative view, though, knocking the stock down by almost 20%, and many latched onto this as evidence of failure. With TPG’s earnings taking a hit in coming years as the company builds its mobile business, there will be plenty more opportunity for sharp price moves.

Patience is a virtue

For the most part, though, these moves will just be the market chasing its own tail. Value investing is all about recognising that these short-term moves can’t be anticipated reliably.

The best you can do is focus on long-term business success or failure, attempt to place a value on that and be patient.

The last bit is the hardest, because it means ignoring all the short-term noise – in spite of the fact that we poor apes have evolved to pay close attention to it. If you can manage it, though, you’ll be able to take advantage of the market rather than be pushed around by it.

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