Tune Out the Noise to Turn Up Returns

Over the years, I've spent quite a bit of time sharing my investment opinions with various members of the financial press. So, it might be somewhat surprising that I'd suggest that for better results, investors should tune out the media. But it's true.

What's my rationale? Unfortunately, most--but not all--members of the media are more interested in getting readers' attention than in offering meaningful insight or analysis. The easiest way to get readers' attention is by providing information that seems relevant. And the cheapest and most readily available information is the daily activity of the various financial markets.

There are many media outlets competing for investors' attention--and advertisers' dollars--and most of them center their offerings on presenting and justifying the daily price movements of various markets: This means lots of prices--stock prices, oil prices, gold prices, money prices, and even pork belly prices--accompanied by lots of explanations/guesses about why prices changed. Unfortunately, these daily price changes seldom have any relationship to real changes in value. Rather, they almost always merely represent volatility, which is intrinsic to any open market.

The "noise" generated by this focus on volatility is nearly impossible to escape, very difficult to ignore, and too often encourages investors to make portfolio decisions based upon what's happening today, not what is possible over the next three, five, or 10 years.

This is unfortunate because managing your money to volatility can be costly. It typically requires quick decisions, often with limited information. And in almost every instance, someone else--an insider, hedge fund, or institutional investor--will have the information before you did. Sometimes the information isn't even true; lots of folks try to make money on Wall Street by spreading false rumors.

Managing to noise also requires lots of buying and selling, which will make your broker happy, but will have the opposite effect on you because his commissions will reduce your profits, sometimes significantly. Not only does frequent trading put a smile on your broker's face and some coins in his pocket, but Uncle Sam likes it, too, because he gets a cut of every profitable trade you make. This outlay to the IRS reduces the amount of capital available for long-term compounding, which is the key to accumulating investing wealth.

So, I'm suggesting two things that should boost your wealth over time. The first: Shut out the noise. Turn off the financial news shows. Stop looking at your portfolio three times a day. Forget about opening your monthly brokerage statement. And if none of that helps, move to Omaha or somewhere else removed from the noise. If moving to Omaha isn't an option, at least take a critical eye to news reports and try to distinguish between information that's noise and information that has real economic value.

I'd also recommend using a buy-and-hold approach to investing. First, look for great businesses that are certain to increase in value over time. (At Morningstar, we call these wide-moat businesses.) Then, wait for these businesses to go on sale. When they do, buy them and forget about them.

 Anheuser-Busch (BUD) would be a good company for starters. I've included a long-term price chart so that you can see the increase in value over time as well as the volatility of the stock. Don't confuse change in price with change in value.

Anheuser-Busch has a wide moat, which means that its competitive advantages are so strong that it will enjoy abnormally high profits for many, many years, but the stock has faded recently because volume growth has been weak. Does weak volume growth in one year mean this company won't be much more valuable a decade from now? No, but lots of "investors" sold the stock because of this short-term issue. This is managing to volatility.

Americans aren't going to stop drinking beer. Neither will Mexicans, nor the Chinese. Beer has been with us for thousands of years--the Chinese brewed beer called "kui" 5,000 years ago--and people like drinking it. Anheuser-Busch is the most profitable, most dominant beer company in the world, and it will enjoy plenty of success over the next decade. Buying its shares and holding on to them because of its likelihood of long-term success is sound investing. Plus, you'll sleep soundly at night.

I've included below a few more stocks that would fill the bill. For even more, I'd suggest that you subscribe to my monthly newsletter, Morningstar StockInvestor, where we have two real portfolios in which we buy and hold wide-moat companies at discounts to their intrinsic values.

Stocks for the Long Haul
Company	Star Rating	Fair Value Estimate ($)	Current Price ($)	Economic Moat	Business Risk
Fifth Third (FITB)		57	43.29	Wide	Below Avg
Coca-Cola (KO)		54	42.12	Wide	Below Avg
Iron Mountain (IRM)		39	28.65	Wide	Below Avg