“Market performance and corporate performance are rarely synchronized over the course of a calendar year. But as more time passes, the synchronization between the two inevitably begins to reveal itself.” – Francois Rochon
“We recognize that over long periods of time, the share prices of our holdings should grow at a pace driven by the economics of the underlying businesses.” – Chuck Akre
“Over the intermediate to long-term in the stock market, business performance has been inexorably reflected in share price performance.” – Bill Ackman
“On any given day, market prices are driven almost 100% by sentiment. As one’s investment horizon lengthens, however sentiment matters less and returns are more dominated by cash flows.” – Andy Redleaf
“Long-term gains in the intrinsic value of a company are more important than short-term gains in stock prices. The market has a way of fairly pricing stocks over long periods. Provided a company performs well, its stock price will invariably reflect the performance” Christopher Bloomstran
Maintain Your Focus on a Company’s Earnings
Maintaining your focus on a company’s earnings rather than the share price can give you the fortitude to hold-on when share prices maybe telling you to sell.
“Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it… The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate.” – Warren Buffett
“Note that I have no interest in the development of share prices. This is why I don’t waste your time with a discussion of the fund’s or individual company’s price development. If a company regularly increases its earnings power, the share price will track this over time. A robust investment process correctly identifies companies which increase their earnings power. A rising share price is the outcome. My sights are firmly trained on process.” – Robert Vinall
“We do not evaluate the quality of an investment by the short-term fluctuations in its stock price. Our wiring is such that we consider ourselves owners of the companies in which we invest. Consequently, we study the growth in earnings of our companies and their long-term outlook.” – Francois Rochon
And by thinking about future earnings you’re also less likely to overpay for a stock or get caught in a value trap.
“Bear in mind–this is a critical fact often ignored–that investors as a whole cannot get anything out of their businesses except what the businesses earn. Sure, you and I can sell each other stocks at higher and higher prices.” – Warren Buffett
Related – Trade, Tariffs & Tirades: A Primer on What Has the Markets in a Dither
“Occasionally, people lose track of the fact that in the long run, shares can’t do much better than the companies that issue them.” – Howard Marks
“The inescapable fact is that the value of an asset, whatever its character, cannot over the long term grow faster than its earnings do.” Warren Buffett
“Wild swings in market prices far above and below business value, do not change the final gains for owners in aggregate; in the end, investor gains must equal business gains.” – Warren Buffett
It’s time to look for businesses which offer the potential for sustainable earnings growth. Buy them at reasonable share prices and the returns will follow!
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now … Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value. “ – Warren Buffett
This article has been republished with permission from Value Walk.