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Walking the Dog

Posted By: Admin

Ralph Wanger  is considered  among  the world’s greatest investors, he was incharge of the Acron Fund between 1970 to 1992 and retired in 2003. Ralph Wanger wasn’t willing to pay for growth at any price, only investing if the company was also cheap relative to its earnings and assets. However he did believe esp if one were investing in Small & Midcap stocks that one must give it the time needed for the market to recognize the performance. 

Ralph Wanger is not only a great investor but a great investment writer and is known for unifying his observations into his writing.And here is one of his most interesting observations, where he analogizes the stock market to a man walking with the dog. This man has been doing the same walk for years.

But if you have walked a dog, you’ll know it doesn’t walk in a straight line. The dog hops forward and backwards, from one direction to another either to smell something or bark at other creatures. The dog also jumps on you for no reason, and even sometimes jump randomly on benches and other things.

In short, there’s no way to predict what dog will do and which way he’ll walk.

But if you know that the owner of a dog is heading northeast at about three miles per hour, towards the museum, you will eventually also know where the dog is heading towards - because that's where the owner is taking him.
Wanger further adds, "What is astonishing is that almost all investors, big and small, seem to have their eye on the dog, and not the owner."

The market goes through cycles, and not all years are the same. There are years of blockbuster returns, there are years of subdued growth, and then there are years where we see a drop. But even if you’re investing in the worst possible time, history says that you’ll be able to do well. The key? Time in the market and the ability to follow businesses and not the ticker price.
But to achieve such returns, you’ve to be a long-term investor who can sit tight even when markets are not right. Easier said than done.

In Summary if you’ve been only following the dog (stock price), you’ll miss out on substantial returns delivered by good owners (businesses).

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