Poetic Portfolios

Even for the most disciplined investor, it can be difficult watching stocks decline as they have this year. I need to remind myself and the few that read this blog that it is the long-term that counts.

If a company is still growing earnings while its stock price is plummeting, it may be best to ignore the price. It is now earnings season, and many of the companies that I hold have announced or will soon announce their year-end earnings. I will be updating my valuations based on these results to determine how the value of the individual businesses compares to what the market is quoting.

On many of my holdings, I already own as much as I want to own. To purchase more would concentrate my holdings more than I want. So after earnings season, I am really looking forward to evaluating new companies for potential investment. If low prices persist, this may be the opportunity of a decade.

Even as I say this, I recognize that for the majority of my investment life, the internet bubble burst included, stocks have had a remarkable run. When I was reading The Intelligent Investor this fall, I was struck by the prolonged periods of price stagnation. How many investors would get disgusted with the market if stocks declined 10% further this year and did not recover for five years? Some investors get skittish and impatient after a three months of poor market performance. What would happen if that lasted five to ten years?

Hopefully investors can value their shares separate from the market and take solace from the fact that the value of the business is growing even if the share price is not. Eventually, the market will recognize value. During these times it is more important than ever to focus on finding well-run companies with favorable long-term prospects that are trading at a discount to their true value. I am certain that I have a few of these among my holdings, and over the long-term I will be rewarded for my patience.

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This entry was posted on Monday, February 11th, 2008 at 5:58 am and is filed under Thoughts on Investing. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.