Big Mac, Whopper, or maybe Chick-fil-A?

Now that you’re hungry or emphatically declaring your allegiance to one sandwich or another, let’s regroup.  Let’s finally do away with the idea that you are a trader.  In fact, I would argue after thirty years in the securities business that almost no one is decent at “trading” stocks, including Warren Buffet and or Charlie Munger.  That said, many of you are in fact, great investors.  What’s the difference you say?
I direct you back to our fast-food choices, not the sandwiches so much but the “franchises”. 

      If I tasked you with buying a franchise, you’d more than likely spend some time with the numbers. If I said here’s a million dollars to pick a franchise to buy, you would I hope not use the following criteria:

  1. I like French fries, therefore I’ll go with McDonald’s.
  2. I am a fan of royalty, so I’ll go with Burger King.
  3. Cows are cute, so Chick-fil-A it is.

I hope and largely believe that most of you given the opportunity to invest in a “business” would spend a great deal of time investigating the real metrics involved in the business.  I hope that you would investigate the cost of operations, the profitability of each franchise, and the ongoing expenses related to running it.  You would ask for details pertaining to sanitation and regulatory issues.  Furthermore, I suspect you would not buy a Burger King only to sell it a few weeks later in exchange for a McDonald’s because you heard that the Grimace was making a comeback.

I don’t believe you would do anything of the sort.  I don’t believe you would in a franchise based on the color of their uniforms or on hearsay.  I do not believe you would sell that business nor trade it for another one if that business had a bad week of sales or a bad year for that matter.  As an entrepreneur, you would do your due diligence and work through any difficulties to get where you were going.  You would not sell easily, and you would buy very carefully. 

Being an investor is way different and historically way more profitable than being a trader.  We choose stocks and or any other security based on the long-term viability of that organization. Price to Earnings, Price to Sales, and Cash Flow or just a few of the metrics we use to decide what company we want to buy and hang to hopefully for a very long period of time.  Sure, sometimes a company that we’ve chosen totally defies the metrics we’ve chosen as our disciplines and falls out of bed, this however is rare if the holding period is extended. Being a trader requires you to be correct not only about the company but about the market, the Fed, Geopolitics, and public fickleness to mention just a few.   Picking companies or “businesses” and trusting them to navigate through market and business cycles is what we do because it’s a proven and disciplined process.  Trading is for those who lack discipline and process, you lack neither. 

– Scott Brown

“The Stock Market is a device for transferring money from the impatient to the patient” -Warren Buffet

Previous Post
FINtalk with Taimi Bek | Market Update | February 2023
Next Post
The Status of the Dollar