Monday, January 6, 2014

Stock Market: Viva La Long Term Thinking

(Drivebycuriosity) - "Long term thinking is dead", claims Morgan Housel from the influential online service "The Motley Fool" ( His article got often reposted. I think he has some interesting arguments, but I disagree.

Yes, there are tons of gamblers in the market, calling themselves traders, who don´t care about the future. They may include the majority of fund managers - especially the hedge fund managers. These people have an extremely short time horizon. They want profits now. They don´t care about the future and they hate when a company invests money because that will reduce her profit now. This now thinking is a problem for the whole economy because it hampers investing in interesting ideas and slows the technological progress.

But there are important exceptions. You may take a look at Last quarter the company reported a loss, but the stock gained since then around 20%  Analysts expect that Amazon earned just 73 Cents per share in 2013 and predict a profit of $2.64 per share for this year. Thus the stock costs more than 100-times the expected earnings for this year.

It seems that Amazon investors trust CEO Jeff Bezos who is sacrificing profits now and invests tons of money to keep the company growing. spends billions of dollars for fulfillment centers around the world, global data banks for cloud computing  (cheap computer capacities for customers) and thousands of software engineers to become much larger. E-commerce is still in its infancy and has still a huge growth potential, especially on the overseas markets. Maybe one day will become for the whole world what Walmart is now for the U.S.

And there are more examples. Investors in Netflix, which costs more than 80-times the expected profit for this year ($4.03 per share), seem to believe that some day the company will feed the global hunger for digital delivered movies and TV entertainment. Maybe Tesla, with a stock price of $147 (expected profit 2014: $1.50 per share), could rise to a player on the global car market, in the same league with General Motors, Volkswagen and Toyota. 3D Systems, maker of 3D printers which costs around 70 times of the predicted 2014 profit ($1.29), could advance to a leader of a new industrial revolution. Many investors believe in Twitter and pay $66 for the stock, even with an expected loss in this year (minus 4 Cents per).

I believe we are living in a great time for long term thinkers. It seems that we are now experiencing a new technology boom. Consumers love smartphones, tablets, e-book readers, game consoles and other high tech devices. Those gadgets, which didn´t even exist in the year 2000, are rapidly getting better and more alluring thanks to new apps and other software. Many digital devices can be used to access the Internet which leads to the mobilization of the World Wide Net. This raises the number of its frequent users sharply - and not just in the industrialized countries. Thanks to this easy access people worldwide are spending much more time and money on the Internet for E-commerce and other services. Millions of people are using Internet and other incarnations of software to organize shopping, leisure time, traveling, dating, eating out and more.

And there is more. Rapid advances in software & Internet (including cloud computing), robotics, 3D printing, nanotechnology, genetic engineering and other technologies will raise the productivity of the companies significantly and create new markets translating in climbing company profits and gains on the stock market.

As an individual investor I am free to ignore the gamblers and the daily noise. I can stick to my ideas and views of the future and wait patiently till my long-term investments are ripe.

Viva la long term thinking.

Disclsoure: I am an investor in

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