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Oh, the dog days of summer. The Romans believed the appearance of Sirius, the brightest star in our sky at sunrise, was the cause of the hot weather. Sirius shines in the constellation Canus Major, or “greater dog” in Latin, and is thus known as the “Dog Star.”
The term “dog days” also has found a spot in investors’ lexicon, sometimes describing lackluster stock market behavior during the summer. Some prognosticators have attributed this to vacationing market participants and believe it validates the investment cliché, “Sell in May and go away,” even though historical market statistics do not prove the validity of doing so.
The dog days don’t slow financial broadcasters from spinning the daily news into drama for investors, though. CNBC and Bloomberg must fill a full business day with material for viewers. Although the material can be worthwhile and enlightening at times, the overriding theme is that investors must be poised to act and react to “news” at a moment’s notice. Throughout the day, contributors would have you believe that being in the right “trade” is the key to financial success. Segments with titles like “Fast Money” and “Mad Money” advocate running your portfolio like spins on a roulette wheel. This is a terrible approach to the serious task of building your long-term net worth.
So what is an investor to do when confronted with listless markets, or worse, the urge to “trade” their portfolios? I pay a visit to my library of investment classics and typically begin by pulling a copy of Ben Graham’s “The Intelligent Investor” off the shelf and starting to read—anywhere. Before long, I find myself nodding in agreement with the wisdom that pours from Graham’s missives. The book’s advice always provides a sort of cathartic renewal, helping to restimulate the juices to go out and uncover a few attractive long-term investment opportunities.
Warren Buffett has said that all an investor needs to be successful is to understand Chapters 8 and 20 of “The Intelligent Investor.”
Chapter 8, “The Investor and Market Fluctuations,” is where Graham wrote his classic allegory of Mr. Market. It teaches how to think about investing and how to develop the proper temperament to be a successful investor.
In Chapter 20, “Margin of Safety as the Central Concept of Investment,” Graham distinguishes between price and “intrinsic value.” He counsels investors to buy at a price well below conservatively calculated value, establishing a buffer against downside risk, and providing for long-term gains once the market recognizes the business value.
Another source of investment wisdom is easily accessed on Berkshire Hathaway’s website. There, a reader can find all of Buffett’s annual letters to shareholders, dating back to 1977—a 35-year period that stretches across both good and bad economic and stock market environments.
So save yourself from listening to some stooge arguing that you should put on a trade of “long gold and short the euro” or spare listening to 10 minutes of drivel from the analyst who has a gimmicky $1,111-per-share price target on Apple stock.
Instead, fill your head with high-quality counsel as nearby as your bookshelf or your computer. Your net worth will thank you.•
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Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money management firm. His column appears every other week. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.
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