Wednesday, October 2, 2013

One Way to Improve Your Investment Process

I sometimes think we are too much impressed by the clamor of daily events. Newspaper headlines and the television screens give us a short view...Yet it is the profound tendencies of history, and not the passing excitements, that will shape our future. —JFK
A few years ago, I was speaking with one of my favorite fund managers and asked him why he chose to set up shop in a small town, hundreds of miles from Wall Street. 

His answer was simple: "In order to focus." 

The perfect place to invest?
The more immersed you are in investing, the more distractions there are. It's just that simple. 

Great investors find a way to focus and tune out the distractions. For some, like the fund manager, that might mean living away from the hustle and bustle of major cities.

Before you put up the "for sale" sign...

Knowing how to separate what's important and what isn't partially comes with experience and going through a few market cycles, but investors at any level can dramatically improve their decision-making process by simply not investing with the news cycle.

A few weeks ago, Josh Brown (aka Reformed Broker) had a great post entitled "I Went to Cash Because (Please Check One)". It does a great job of showing that investors who sold their stocks based on passing story lines over the last few years have ended up being sorry. 

The news cycle can be intense at times -- in both up and down markets -- and it's easy to get caught up in it. The key thing to remember is to not make investing decisions based on the news topic du jour. Like the Chicago weather, just wait a few minutes and it'll change. 

What really matters

Alternatively, as JFK's quote suggests, it's the "profound tendencies of history" that really matter in the long-run. JFK was commenting about society and politics, of course, but I believe the principles also apply to investing and business.

Over time, individual companies, sectors, and markets will be shaped by things like competitive dynamics, investment, and innovation. It certainly isn't whether or not Republicans are disagreeing with Democrats at the moment. 

As such, you can dramatically improve your investment focus by paying more attention to factors that affect longer-term profitability. One thing's for sure -- these factors won't be found in the news cycle.