Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Share
Fooling Yourself?
Published over 2 years ago • 4 min read
Presented By: The Early Bird
Official affiliate partner The Early Bird
Have you ever read a book so long ago that it feels like you’re reading it for the first time?
That happened to me this week when I started reading Nassim Nicholas Taleb’s famous book “Fooled by Randomness.”
Sometimes, we think the quantity of the books we read matters, not the quality.
Naval Ravikant said, “I would rather read the best 100 books over and over again until I absorb them rather than read all the books.”
This is one of those books that needs to be read multiple times for proper absorption.
I’m “reading” the audiobook version with the Hoopla app. With a library card, you can download and access many quality eBooks, audiobooks, and movies…for FREE!
It’s highly recommended if you spend lots of time moving about and listening to things.
If you check your stock prices 300+ times a day as I do, there’s a powerful thought he shared to remind me of this error I’m making.
Nicholas Taleb wrote: “Over very short time frames, you will observe your portfolio's variability, but it's only over long time frames that you will observe its performance.”
This is one of those eye-opening quotes because it's so obvious, yet most people don’t realize it.
The shorter the time frame, the higher the degree of variability, meaning prices can fluctuate wildly up and down.
But this is because of people trading stocks and not owning long-term businesses.
It also ties into the famous Ben Graham quote, which I should probably add to my tattoo collection: “In the short run, the market is a voting machine, but in the long run, it’s a weighing machine.”
The simple fact is that revenue and profit margins will raise or lower a stock price over many years.
However, in the short term, people will sell for thousands of reasons, distorting price and value.
But because I’m human, this is easier said than done, and I might be making this mistake now with Nexstar Media (NXST).
I know. It's another Nexstar newsletter concern, right?!
Virtually every media stock not named Netflix (NFLX) is in a state of uncertainty…and the market hates uncertainty.
Nexstar is a very profitable and well-managed business, but if the market decides that it no longer wants legacy media, Nexstar will be affected.
Most of their revenue comes from local broadcasting, which falls under “legacy media,” which includes print media, film studios, music studios, advertising agencies, television and radio broadcasting.
While they are shifting into other media growth vectors, it may not come to fruition and be enough to sustain their historical profit margins…which will drag the stock price down over time.
It all comes back to looking for quality businesses for which we can reliably predict their revenue and profit margins will continue growing many years into the future.
But it is the short-term variability that’s giving me indigestion and second-guessing myself.
If you’re confident in the stability and growth of a business you own, don’t be fooled by the short-term price randomness, and sleep well at night.
The last thought I’ll leave you with is that everyone has the same data, but what that data means is the great unknown every investor needs to figure out.
Do you ever worry about short-term portfolio variability? Hit reply and let me know, or just fire off anything on your mind, and I'll reply!
😁THANK YOU to everyone who responded to the last newsletter!!
"You don't usually make much money by betting on the thing that everybody else loves. The big money is made by betting on the things they hate, which as a result are cheap...if you're right."
🤑Rick Stambaugh from Orange Mountain Financial brings you ‘Grow Retirement Income.' He’s a seasoned pro with over 30 years in trading and a passion for guiding folks to a prosperous retirement.
⚠️Seeking Alpha Premium SALE!
Click the image above to try Seeking Alpha Premium forFREE for seven days and save 20%!
*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above. *Auto-renews is an annual subscription for the first year only. At the end of the free trial, $189 is charged automatically for an annual subscription. Auto-renews as an annual subscription at the then-current annual list price. Plus sales tax/VAT, where applicable.
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
I think I might be addicted to a dividend. Nobody needs to stage an intervention, but I own a stock that pays about 10%, and every time I think about selling it, I find a reason not to. And lately I've been wondering if the reason is just... Loving watching that money roll in every 90 days! What got me thinking about all this was when Ares Capital (ARCC) reported earnings, and on top of that, they announced they're buying another company called MidCap Financial (MFIC) in a deal worth about...
Happy Halloween! I thought it would be fun to find a few companies that fit the season and pay you to own them. This is a very quick read, not a deep dive. It’s just enough to put a few ideas on your radar. 3 numbers to know first: 10-Year Dividend Growth: How fast the dividend grew each year, on average, over the last 10 years. Growth Streak: How many years in a row the company has raised its dividend. Free Cash Flow (FCF) Payout: Free cash flow is the money left over after a company pays...
I want to show you one of the laziest things I own... And one of my favorites. It’s Main Street Capital (MAIN). MAIN lends money to small and mid-sized private companies. Think family-owned size businesses that are too small for Wall Street to care about, but too big for the local bank to lend to. MAIN collects interest on those loans and sometimes owns a piece of the businesses too. Then it passes most of that money to shareholders. Every single month. But there’s one catch. MAIN’s dividends...
