Greed Is Good

Forty years and more ago, I knew a stockbroker who had a sad story.  He had once sold a stock after it tripled.

The stock was Consolidated Dennison Mines, the vehicle used by legendary uranium miner, Stephen Roman.  His problem was that he had purchased it for around 23 cents a share and had sold it for a little over 70 cents.  Triple your money is not the worst problem you can have I suppose, but that is not the point.

Had he kept it, put it in the long term bucket instead of the trading bucket, he would have reached about $100 per share less than 15 years later.  While triple your money trades are satisfying, 400 times your money trades are quite exquisite.  The annual dividends alone would have been vastly more than the cost of the position.

Oddly enough, I had a client who also had bought Dennison.   His brother worked with Steve Roman and my client had purchased $5,000 worth of the stock in 1954.  By the late 60s, it was worth millions and he still had it.  Life changing gain.

We can look at portfolios like Berkshire Hathaway and we can see the same thing at work.  Buffett’s idea is that the best holding period is forever.  It has a simple explanation.

Warren Buffett and other value investors are greedy.  Not greedy in the “Greed is good” sense of Gordon Gekko in “Wall Street” but a more patient version.  He and the others have long term greed.  The don’t care much about the short run because that is not their playing field.  The neither seek nor need a quick triple of their investment.

Long term greed is patient.  Long term greed demands that an investor understand both the value of the companies they invest in and the pricing mechanism the market uses for purposes of day to day trading.  Until an investor understands and uses both of those ideas, they tend to be short term greedy.

Even experienced investors sometimes fall into the trap that markets set values.  They do not.

Markets supply liquidity for securities.  In the short term, the market value of the security has little relationship to business value.   Prices are affected by things unrelated to the business that the stock represents.  Market prices depend on people.  They depend on their fear, expectations, hopes, hype, pundits, political events and not least of all, short term greed.

Trading for the short term return is fundamentally different from investing for the long term.  One requires that you understand how your fellow traders will behave and the other requires that skill and that you understand a business.  Neither is easy.  One requires good timing, while the other requires just time.

Sometimes you can make a nice return in the short run, but for great fortunes, you need longer.  Every person who hopes to solve their financial future, should hold at least some of their money in the long term greed form.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  866-285-7772

3 Comments on “Greed Is Good

  1. Well said thank you once again.From the beginning I was wondering where are you taking this but with your skillful way you made the point clear.I believe in long term investing and that is how I advise my clients.The short term is more like gambling because of the many factors that impacts and affects the market.I am truly grateful for your kind because you keep us grounded and equip us to provide our clients with the best solutions and services available.

      • As always you are appreciated and your blog and comments are taken seriously by me and my colleagues and clients.Your wise words derived from experience and research are invaluable to us your followers.I have noted that this part is a continuation of the previous comments on the same subject.Thank you

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