Sometimes, more is more.
You will certainly have a nicer garden and lawn the more you water them. Your muscles get larger the more you lift weights. Your musical skills tend to get better the more you practice. Your relationships grow closer the more time you spend with friends and family. In most parts of our lives, more is indeed more.
When people start investing on their own, the natural inclination is to do as much as possible. After all, our experiences in other parts of our lives tell us that our success or failure is highly correlated with the amount of effort.
Unfortunately, many people beginning to invest on their own tend to think that this effort has to come in the form of more trading, more CNBC, more "hot tips," and more real-time quotes. The instinct is that the more we watch the market and modify our portfolios, the better our returns will be. More is more, right?
This, as any true Fool can attest, is typically not the case. All rapid-fire trading does is rack up brokerage commissions and, if one is lucky enough to make a profit, short-term taxable gains. Traders are also constantly working against the spread, which is the difference between the asking price and the bidding price. While the spread is normally only a half a percent or so on any given stock, this hidden cost can really accumulate for those trading excessively.
Watching financial television and constantly pulling up quotes is also an activity where "more" may not give you a higher return. It may look cool to have CNBC blaring next to a computer with quotes and market headlines screaming along the bottom of both screens. However, being intravenously fed with information can give one a short-term focus and increase the temptation to trade. In these cases, less is more.
I think we'd all be better investors if we spent more time thinking about the fundamental qualities of our company's businesses and less time looking at stock quotes. It's not often that we quote Warren Buffett here in the Rule Breaker (that's what the Boring Portfolio is for), but one of my favorite Buffett quotes (when he paraphrases his mentor Ben Graham) says something along the lines of, "In the short run, the market is a voting machine. In the long run, it is a weighing machine." When focusing on the short-term popularity polls in the stock market, less is more. Only when researching and weighing a company's worth is more truly more.
Not much happened with the Rule Breaker Portfolio stocks today. About the only thing catching our attention was Amgen (Nasdaq: AMGN) as a hearing began into a competitor's claims that it can make a version of Amgen's Epogen product without violating Amgen's patents. The outcome of this litigation will certainly affect the value of the company, and today's sentiment seems to be that Amgen will come out victorious. As always, time will tell.
Click here to read Amgen's headlines or here to read fellow Fool Zeke Ashton's take on Amgen's hot issues. (The second link is infinitely more valuable, in my humble opinion. Click them both and see what I mean.)
Sometimes, more is more.
- Mar 27, 2000 at 12:00AM