Subtitle: Short versus long term: Why not both?
Is Saul a short term or long term investor? My answer: who gives a rip? For all TMF’s preaching about being a long term investor, I think what many of us overlook is actually the short term! But let me take a step back.
The Long Term
I think it is crucial that Saul will only buy stocks with long term potential. I couldn’t agree more, and I can’t imagine buying a stock just hoping for a 10% pop or something. But long term potential means two things:
- We’re not in for a quick X% (on earnings, news, or whatever that we expect will drive the pop) and then to get out
AND
- The stock ACTUALLY has room to run, because the company actually has room to grow. In the KB, Saul talks about finding companies whose revenue and profit could double or triple or more. I have no interest in the “lumbering behemoths” of the world like MMM or JNJ. Sure they may be incredible companies, pay a steady dividend, even beat the market over a period if you buy at the right time…but you have no hope of getting a 30%, 50%, or 100% return in a few years. “Saul stocks” (sorry but the term is convenient) always have that potential.
The Short Term
But this is equally crucial: Saul isn’t just content to buy and hold forever despite all of the shorter term things that are going on with a company. This seems almost too obvious to say, except that I hear the opposite all the time from the Motley Fool. I can’t understand why you’d hold something you feel is not a good for the short term.
If you buy things that are frothy, you’re going to lose a lot of money on at least some of them. TMF stance: Sure, FEYE is down 75% or whatever, but if you hold it until 2030 you’ll forget all about the THREE FOURTHS of your original investment that were lost. Well maybe so, expect there are at least 2 problems with this:
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The opportunity cost – Perhaps the stock does eventually rebound to what you bought it for, and goes on to do great from there, but when? How much could you have made on your money by then if you’d been in something that was doing well the whole time - something where you didn’t need several years just to get back to where you started? By the time your stock has gone down and come back up in the “short term,” something else will have doubled.
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It’s really hard to predict what will happen 10, 20, 30, or more years from now. Sure, it’s hard to predict what will happen in the short term, too, but see Saul’s quote at the very bottom of this post.
Saul doesn’t just buy and hold forever without another thought. He knows the companies and what’s happening with them in the short term. No one can say for certain that SKX, for instance, will remain popular and profitable for the next 30 years. But we know how it’s being run today and believe as long as its being run that way, it will be a great investment. So OF COURSE we need to keep tabs on the company to make sure it’s still being run that way! That’s part of our investing thesis! If that changes next year, I will sell. But if I just buy and hold for years and years, well, a lot can happen.
Conclusion
As I understand it, Saul’s approach is always keep his money in the companies he has the highest conviction about. In my opinion, that’s the best way to go, period. An the only way to do this is to be a long term AND short term investor.
Sometimes that means holding a stock for years. Sometimes that means ducking and covering. Sometimes that means getting back in. Sometimes that means waiting.
Never ever buy a company that doesn’t have long term potential. But never ever buy a company that doesn’t have short term potential, either. As Saul says in the KB:
If you look at two stocks and say to yourself “This one is a Sell and that one is a Buy,” don’t you think that on average the ones you think are buys will do better? I’d bet a bundle that, on average, the ones you figure are buys will do better than the ones you figure are sells! If not, why are you bothering to evaluate stocks at all?
Live long and prosper, my friends.
-Bear
