Sunday, 5 November 2017

Do Not Judge A Blogger By Short-Term Price Movements

How do you judge if a blogger is correct? Is it by price movement? That is, if the price moves in the same direction as what the blogger writes, then he is correct. Conversely, if the price moves against him, then he is wrong. This is an easy and convenient way of judging a blogger, but is not necessarily correct. If you are a short-term investor, then short-term price movement can be the yardstick to measure a blogger. But if you are a long-term investor, short-term price movement is the wrong yardstick.

Using last year's Brexit referendum as an analogy, most observers think that Brexit was a bad idea. However, the majority of British voters voted for it. Does it then mean that Brexit is good and most observers are wrong? The fact that the majority of voters voted for Brexit does not change the fact that Brexit is a bad idea. The outcome of a vote does not determine the correctness of an analysis. Coming back to the stock market, Benjamin Graham once said that the stock market is a voting machine in the short run and a weighing machine in the long run. Thus, from this comparison, short-term price movement does not determine if an analysis is correct or not. The correctness of an analysis will only show up in the longer term. 

Last week's Sunday Times carried an interesting article about Jim Rogers that illustrates this point. He shorted the shares of 6 different companies but ended up having his savings completely wiped out as the shares continued to rise. At this point in time, would you say Jim Rogers was correct or wrong? 2 to 3 years later, each of the 6 companies he shorted had gone bankrupt. Thus, if your yardstick is short-term price movement, then he is wrong. However, if your yardstick is economic outcomes, then he is correct.

Hence, if you read my blog posts and the price went in the same direction, it does not mean I am right. Likewise, if the price went in the opposite direction, it also does not mean I am wrong. Short-term price movements determine nothing. Do not judge a blogger by short-term price movements.

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  1. Hi Lee Chin Wai,

    I like to read your blog posts for the reasoning behind the decisions and not the outcome. In fact, I get even more interested when the outcome is bad. The educational value is much higher learning from bad outcomes, particularly when the process looks right. I prefer a blogger who presents the information and explains the reasons behind his investment picks like you to someone who only flashes an impressive portfolio without explanation how he arrived at it.

    Of course, I wish you best outcomes in all your investments.

    1. Hi Hyom Hyom,

      Thks for your kind words! All the best in your investments too!