LUTZ BUSINESS INSIGHTS
Do I Own a Market?
JUSTIN VOSSEN, INVESTMENT ADVISER & PRINCIPAL
PUBLISHED: MARCH 7, 2014
It’s an important distinction that we as investors need to get correct in our minds. Do I own a “market” or a collection of businesses? All too often, investors fall into the trap of thinking that the market is a beast that is prone to violent swings that is too scary to tangle with. While the “market” is absolutely volatile, when you break it down to what it actually is, it seems easier to comprehend.
The market is not in itself an entity. The market does not exist as a thing, it is a place. The marketplace does exist, which are thousands of businesses that are listed on a public exchange and available for purchase. It’s an amazing place where ordinary individuals can purchase ownership in these businesses and own shares of the returns that these companies generate. We invest our capital in companies that are available in a central location. We do not invest in the “market”.
The problem is that some on Wall Street, cable news shows, and others spend an indordinate amount of time creating a persona about the market. Many spend time describing the market as a “bear” or a “bull”, or note that the market is “tired”, or perhaps is a “bubble”.
Nobody describes any other market place like that. Have you ever heard somebody give those personas to a supermarket ? People treat a supermarket like what it is, it’s a place where you go to purchase goods. In an investor’s case, those goods happen to be ownership of businesses.
What is different is that in the investing marketplace, the prices change by the second. In other market places that is never the case. Can you imagine going to the supermarket and getting a basket full of items and your banana’s jumped by $1 by the time you checked out? What really changed with the bananas between taking them out of the produce section, and getting them to the checkout? Would you look at a historical chart of banana prices to find the best time to buy them and buy a cart full? Of course you wouldn’t, it would be ridiculous.
What really changes with a company such as Union Pacific on a minute-by-minute or even a daily basis? Sure, they may have major news that day, but what about the other 364 days a year? Because of the disclosure rules and publically disseminated information, aren’t we all looking at the same set of numbers, facts and environment? We are, but many are interpreting the same data very differently. This leads to daily fluctuations.
Different opinions on the same information is good for the market as it aids in getting the correct value for the company. The sum of everyone’s collective interpretation of the data is probably a reasonable estimation of the worth of that company at any particular time.
The point is, that we shouldn’t look at the market as an entity that is moody on a daily basis. At the end of the day, we as investors own companies that produce things, and most importantly produce profits. So, the next time you see the next 300 or 400 point day on the Dow (up or down!), ask yourself what really changed with the businesses I owned that day? Chances are, much less than the market moved.
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.
ABOUT THE AUTHOR
JUSTIN VOSSEN, CFP® + INVESTMENT ADVISOR, PRINCIPAL
Justin Vossen is an Investment Advisor and Principal at Lutz Financial. With 21+ years of relevant experience, he specializes in providing wealth management and financial planning services for high net-worth families, business owners in transition, endowments and foundations. He lives in Omaha, NE, with his wife Nicole, and children Max and Kate.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- CERTIFIED FINANCIAL PLANNER™
- Financial Planning Association, Member
- BSBA in Economics and Finance, Creighton University, Omaha, NE
- St. Augustine Indian Mission, Board Member
- Nebraska Elementary and Secondary School Finance Authority, Board Member
- St. Patrick's Church, Trustee
- Mount Michael Booster Club Board
- Lutz Gives Back, Committee Chair
- March of Dimes Nebraska, Past Board Member
- Creating an Investment Policy for a Nonprofit Organization
- Nobody Talks About Rick Anymore?
- The Current Financial Health of the American Consumer
- A 100-Year Bet Gone Bad
- Personal Finances: Focusing on What You Can Control
- Planning for College Pragmatically
- Remaining Calm When Uncertainty Surrounds Us
- Am I Ready to Retire? Finding Your Sweet Spot
- 5 Retirement Strategies for Small Business Owners
- Outsmarting the Ivy League?
- An Investor's Year-End Wrap Up & Tax Prep
- Nobody Knows Anything
- Add "Brexit" to the Long List of Uncertainty
- Financial Planning for College Grads
- Fight or Flight - Lesson Learned
- Social Security: The New Rules
- Putting Volatility in Context
- The Asian and European Fronts
- Bubble Looming or a Bubble Popped
- Re-Emerging Markets?
- A Market Perspective
- Timing is Not Everything
- "Yellen" at the Fed
- Mind What Matters...Focus Efforts On What You Can Control
- What to do With a Financial Windfall
- Love Indexes - Hate the Indexes
- Do I Own a Market?
- A Practical Primer On Volatility
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