For many investors, investing in stocks and having fun just don't go together. Investing is serious stuff, after all, not a place for fun and games. Having a good time is for other endeavors, not for the stock market.
For other investors, enjoyment of the investing experience is conditional on performance. When their portfolio is up, it's a great day to be alive. But when it goes against them, they can get frustrated, if not downright cranky. Of course, such price-dependent mood swings don't contribute to prudent, rational decision-making.
To enjoy the investing journey thoroughly - and consistently, irrespective of daily price changes - requires the right mindset, the right approach to the market. Along those lines, here are four things that will help you accomplish that goal:
1. Think of investing as a treasure hunt
It's endemic to the human condition: People love to search for hidden treasure. And it's also the best way to approach portfolio design. It's fun to look for undiscovered bargains, to find hidden gems not recognized by other investors. On any given day, chances are you won't find a gem, but that's not the key. The key is that you might, and that, as they say, makes all the difference in the world.
By the way, to help you kick-start your treasure hunt, I'll be posting more buy ideas in upcoming columns, to accompany the picks from my Top Ten List for 2012. I'll be commenting on the Top Ten List in my next column, reviewing quarterly data for each company and what it means for the future.
2. Stop the constant quote checking
Do you stare at portfolio quotes? Check prices several times a day? If so, you're wasting your time, and, worse, you're setting yourself up for an investing experience marked by frustration and unhappiness. Successful investors do not focus solely on price. Successful investors focus on a comparison of price to value.
Late last year, when my analytical work suggested an intrinsic value for Whirlpool (WHR) stock of $90-100, I scooped up shares for $52. Of course, one of two things had to follow: Either the stock price would go up, or it would go down. The thing is, it really didn't matter. I'd be happy either way. If it went up immediately after I bought it, naturally, I wouldn't complain. But that's not what happened. Instead, Whirlpool quickly dropped to $45 per share. It was sheer good luck to see it go lower, and I bought a lot more, lowering my cost basis to $49, the same price level at which I recommended the stock to Seeking Alpha readers in December.
3. See what others don't see
Very few areas of life reward people for going against the herd, for being critical of the general consensus. Getting along and going along, generally speaking, increases your potential for happiness. It's certainly true at the corporate level - if you're perceived as a team player, you've got a chance to move up the ranks. When it comes to investing, though, it's exactly the opposite, and that makes it fun. It's fun to play the role of "alien," to question everything, to look for and find holes in the logic of the consensus.
Remember all of those pundits claiming we're headed for a double-dip recession? It was just so much silliness, an easy position to poke holes in. The last double-dip occurred in 1982, when Fed Chairman Paul Volcker took interest rates to 15% in an all-out effort to purge the economy of inflationary pressures. It was impossible to avoid a double-dip under those circumstances. Today, the situation is the polar opposite, with the financial system awash in monetary stimulus. The time to worry about a collapse is when prices are high, when speculation and undisciplined risk-taking are the norm.
4. Focus on the Big Picture
Warren Buffett figured it out early on, that the magic of compounding was the cornerstone to wealth-building. Compound at 15% and you double your money in five years, quadruple it in ten. At 18%, you double your money in four years, quadruple it in eight.
What's the takeaway? It's the big picture, the long-term that matters, not the short-term. If the Dow Jones Average soars by 10% in a day, by itself, it won't make you rich and it won't set you up for retirement. Only by stringing a few years of impressive performances together can it have a material impact on your wealth-building plans.
So, accept short-term gyrations with equanimity. If the market rises, it's good. And if prices decline, it's also good, since it gives you the opportunity to reconfigure your portfolio to make higher returns down the road. Adopt the right mindset and you will see market gyrations as simply part of the process, a process to be enjoyed.
Disclosure: I am long WHR.
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