The hardest part about investing in the public markets is that every second of each trading day Mr. Market is telling you you’re either an idiot (when you’re losing money) or you’re a genius (when you’re making money) and it’s not easy to ignore him. It’s like driving a race car – you get immediate feedback. What’s different about the markets, however, is that feedback is regularly deceptive.
In fact, in the markets when it feels like you’re running off the racetrack you’re usually doing the right thing. It’s when you’re in the lead and flying down the straight at 200 mph toward the checkered flag that you should be worried. There is no checkered flag in our game though Mr. Market will make you feel at times like there is.
By chance I recently came across a TED Talk featuring John Wooden. If you haven’t already seen it give it a watch, or two or three. He reminds me a lot of Warren Buffett: common sense wisdom that has been honed by many generations of just plain good people. And it’s wisdom that has been proven out by a lifetime and legacy built on its practices.
Since I first watched this short video a week or so ago I’ve been spending some time thinking about Wooden’s definition of success and more specifically his success pyramid. One of the tenets is don’t look at the scoreboard; do your best and the results will take care of themselves. This is a common theme of his. He also says that people you meet on the street after a game shouldn’t be able to tell from your demeanor whether you won or lost. If you did your best you should be able to walk tall either way.
This may have even greater application for those of us operating in the markets. Mr. Market will tell you you’re an idiot one moment and a genius the next. Don’t pay any attention to either; just do your research, stick to your discipline and trust the results.
Right now Mr. Market is telling me I’m an idiot for buying Apple. And it’s not just him. It’s popular opinion right now that Apple has lost its way and buyers are stupid to take a chance on the company finding it again. But this brings up an interesting trait of the markets and its participants: perception rarely equals reality.
Just look at Starbucks’ stock price through the Great Recession. Cash flow held nearly steady from 2007 to 2009 but the stock price fell 80% over that span. You think perception was marching in lockstep with reality over that time? Hell no. To me, that’s indisputable evidence that the market is inefficient. Perception is regularly divorced from reality when it comes to the stock market.
I believe Apple is going through a very similar situation. No company in the world generates greater profits (here at home and in China). They own the tablet market which is revolutionizing computing and iOS still dominates mobile internet traffic (iOS makes up 55% versus 26% for Android). These aren’t the statistics of a company that is “dead” or “dying” as those most common search results to the right suggest. The general perception of Apple is skewed in favor of the skeptics and the stock price currently reflects that. But that doesn’t make it true.
Still, it’s hard not to look at the scoreboard and feel just a little bit stupid.