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Two Short Stories to Put Successful Investing Into Context

By Morgan Housel - May 13, 2016 at 2:12PM

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Eye on the ball.

Here are two short investing stories I thought about this week that can help put successful investing into context.

Ralph Wanger was born in 1933, almost to the day of the bottom of the Great Depression. He went on to be not only a great investor but a great investment writer, sharing wit and wisdom in his quarterly shareholder letters.

Wanger once analogized the stock market to a man walking his dog in New York. The man has done the same walk for years, starting at Columbus Circle, strolling through Central Park, and ending at the Metropolitan Museum of Art.

The dog has boundless energy and never walks in a straight line. He leaps randomly from one direction to the next, stops to smell every leaf, barks at other dogs, and jumps on you for no reason.

At any moment, there is no predicting what the dog will do or which way he'll leap. His movements are totally unpredictable. But you know he's heading northeast at about three miles per hour, toward the museum, where he'll eventually end up – because that's where the owner is taking him.

"What is astonishing," Wanger said, "is that almost all investors, big and small, seem to have their eye on the dog, and not the owner."

As you navigate your life as an investor, pay more attention to the owner (businesses) and less to the dog (markets).

Next is a story about a conversation I had this week with Motley Fool co-founder David Gardner.

David loves games, which is a bit of an understatement. He owns 756 board games, which I assume is a record if record-keepers kept track of such a thing.

I found David playing an old arcade game at our office. I asked if he prefers board games to video games. He wasn't sure, so I asked a different question, meant as a joke but it elicited a great response.

"If you had to give up board games, video games, or stocks, which would you quit?" I asked.

"Stocks," David said, without hesitation.

This surprised me. David's passion for investing is part of what our company relies on.

But he explained why this makes sense.

Games are hands-on by design. They are meant to played, not left alone.

But a good portfolio can prosper for decades with minimal intervention. A basket of stocks is not a board game with turns and rounds. It's something that should be mostly hands-off. After a proper allocation is set up, one of the biggest strengths of individual investors is what they don't do. They don't trade. They don't fiddle. They don't require daily monitoring. They let businesses earn profit and accrue to shareholders in uneven ways. 

David's point was that he could be happy never touching his investments again, because he currently owns a big, diverse set of companies whose long-term future he's bullish on.

He probably won't do that, because he'll continue searching for companies to add to his portfolio. But his point is that the game of investing is often won by the investor whose strategy is to "play" as little as possible – quite literally the opposite of a board game.

For more: 

Performance vs. outcomes

Why does pessimism sound so smart?

Things I'm pretty sure about

Hard truths for investors to wrap their heads around

How the investing industry could change  

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