Matthew Waterman
All posts from Matthew Waterman
Matthew Waterman in Brand Power,

Calm Your Expectations And You Will Make More Money

I realize that sounds a bit counter-intuitive but that's the truth. Your expectations are too high. Understand that the market average over the last 200-some odd years for stocks has been around 10-11% return a year. A YEAR. Not daily, not monthly, A year's worth of returns. So knowing that, when I purchase the stock of a great company like Caterpiller (CAT) at a great price, I'm thinking that if the thing rises more than 10% in a year's time, then to me that means I'm doing great, I'm beating the market, right?

So it really boggles my mind when I run across an article after I've had a nearly 25% rise in the stock price, and the headline reads "Earnings results fail to meet analyst expectations". The very first question I ask has to be "Why are their expectations so high in the first place?"

Relax. Stop expecting so much out of the market. 

The market exists to serve you, not to instruct you. Don't get caught up in all the excitement. Take your time. Identify companies with solid earnings histories, and buy them at conservative prices. Don't go in thinking that your portfolio is going to double every week, and don't believe the people who are out there saying it's possible. It's not. You might have a good month, a good year, even several good years, but it's not possible to win every time. 

And if the stock doesn't keep up with the market, don't worry about it. Sooner or later, every good business catches up. It doesn't mean your analysis is wrong. Likewise, remember that you bought at a great price when your return is going over the market averages. That will keep you from selling too soon. My advice is to never sell your good businesses. Just avoid overpaying for them. 

Caterpillar closed down $1.31 to $75.48 today.