Investor’s Manifesto: Five Motivations for Beating Market Chaos and Risk

Five Motivations for Beating MarketThe stock market is close to double-digit growth so far this year, as corporations continue to report modest earnings results.

Playing a market at an all-time high is tough. It makes me think a lot more about risk, portfolio strategy, and how to consider new positions—if any at all.

As a stock market investor/speculator, here are five motivations to keep in mind:

1. Business

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When you buy one share of common stock in a corporation, you are officially a businessperson. You are the CEO of your own investment corporation—the pinnacle of capitalism. In order for any business to be successful over time, it must do what works. You can have a view, you can be totally outraged, but doing what works is what makes money. Buying, selling, and speculating in the stock market is business. Approach it as such.

2. Risk and Control

Investment risk is more important than potential return in any transaction. There is no rush to get in—ever. Be deliberate, cautious, diversified, informed, and skeptical. Most people would not go out and purchase a home or a company in an unfamiliar jurisdiction without doing a lot of research. The stock market is a secondary market. The founders of a listed corporation have already sold. As a businessperson, think constantly about how all the fundamentals in the world can hurt each one of your holdings. Risk in your portfolio is always something you wished you had spent a lot more time on after a shock.

3. Stock Market Action

Doing what works makes money. Being an individual investor, everything in the marketplace is beyond your control: the money supply, sovereign debt, a corporation’s debt, interest rates, inflation, geopolitical events, regulations, taxes, and currency wars. The stock market is going to go where it’s going to go. The action is the action. (See “Stock Market Coming Apart? Still, Business as Usual for This Stock.”) It doesn’t pay to fight the tape or institutional investor sentiment. Take a view, but don’t fight the action, profit from it.

4. Conventional and Unconventional Wisdom

Investing in growing corporations that pay increasing dividends works—but that is making money with the stock market. To make money from the stock market, you need to go against conventional wisdom for capital gains. Always ask: what is way down in price right now, why is it down, and when, if at all, might it turn higher? Buying high to sell higher is a trade. In the absence of conviction, do nothing.

5. Business, Again

Virtually everything to do with the stock market distracts your attention from it. Investment risk differs from sentiment. While the marketplace expected a stock market collapse, Johnson & Johnson’s (NYSE/JNJ) share price appreciated 21% year-to-date. As a businessperson, the only thing that matters is what corporations say about their businesses and the value institutional participants attribute to it. Don’t let noise distract you from your business. Nobody can predict the future.

The purpose of a corporation is to serve a product to the marketplace for profit. The purpose of a stock market investor/speculator is to allocate capital to the most profitable and promising corporations.

Approach the stock market as an enterprise with a strong adherence to risk. At the very least, the results will be 100% your own.