There’s a great metaphor that describes in pretty perfect detail how you should think about investing. It comes from Ralph Wanger, a legendary investor (as quoted in The Four Pillars of Investing):
“He likens the market to an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”
When we started City Different Investments a little over three years ago, one of our main goals was to have that kind of long-term investment horizon. For the most part, I think we’ve done a solid job of ignoring short-term noise and staying the course. But whenever I find my investment gaze shifting too near term, I like to close my eyes and picture this metaphor.
When I imagine myself trying to predict whether the dog will bark at a passing jogger or chase the squirrel under the park bench, I’m reminded that it’s impossible to know what the dog will do in the short term. But, as our time horizon lengthens, it becomes considerably easier.
While it’s much more captivating to watch the dog, it’s really the dog’s owner who holds the key to where the pair is going.
Investing is the same. We obviously care about the price of our stocks — they determine the value of our investments. Sure, it’s mostly impossible to predict short-term price fluctuations… but over longer periods, it becomes possible. On a long enough timeline, the ultimate price movements of our investments will be driven by earnings power and the business fundamentals of our holdings.
Trying to focus on the owner
Since starting City Different Investments three years ago, a lot has happened in the world — supply chain disruptions and fluctuations in consumer demand because of COVID, changes in inflation and interest rates, conflicts in Ukraine and Gaza (to name a few)... While these events impacted the global economy, our performance over this period has largely been driven by the fundamental business development of our investments.
As with all portfolios, we’ve had some holdings outperform while others have underperformed. The key is that we stay focused on the proverbial owner — where are we eventually going, together? That question will be answered by the business fundamentals of our holdings; those fundamentals will be the main driver of our overall investment performance.
That’s the way we like it.
IMPORTANT DISCLOSURES
The views and opinions expressed by individuals are their own and not the views or opinions of their employer. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.