The words of the world’s greatest investor – Warren Edward Buffet. Well…what a wise statement this is! Honestly, out of the plethora of investment tips and techniques all around and the innumerable clutter of quotes from big shots that people abide by and want to use it to make it big someday, a handful of few I find are really truly wise from their core essence, and according to me, one of them is this.
What does this statement mean?
The statement “The investor of today does not profit from yesterday’s growth” in simple words refer to those investors who think and believe that a stock’s future lies in its past. One of the most commonly held beliefs and strategizing mechanisms, or on which most investors base on, simply does not go down well with me. I fail to understand, rationally, that just because a stock has performed very well sometime in the past, its future is not and cannot be assured. It’s almost like betting on a cricketer on making a century every time just because he made a century once. Does it sound rational? I know most of your calculations, intuitions, gut feelings or even your ‘bucket list’ of stocks basically depend on which stocks have performed well in the past. So we can conclude that most of our investment strategies essentially depend on history. In my mind, this is something which has already happened and which really has no guarantee of occurring again.
What does the statement imply?
Now, this is a different question altogether. The quote is a very simple statement but it questions, or rather challenges the basic fundamentals of stock market investment patterns. The implication of this statement, very importantly, is that, investments can never ever be reduced to an excel sheet or a database. So the act of ‘thinking’ can never really be substituted. One needs to rationally or logically ‘think’ and assess stocks in order to make investments instead of merely pouring in money just because it did well in the past. There are too many examples all around where stocks that have been major hits at one point but have simply gone off the trajectory with time.
So which stocks to go for?
If you stop relying on past data and performances of stocks, the next natural question would be – then which stocks or which companies to go for? Which ones to trust that they would do well? My answer to this is pretty simple – I always trust organizations which are fast in adapting to new technology and change with changing times. Organizations that might be new or old but which are flexible. In today’s times of rapid changes amidst a constantly changing dynamic marketplace with cut throat competition, it is only organizations that are on their toes all the time and technologically at par with the times, which are going to perform and do well in future, not the ones that might have done well in the past. The trust in history has become history now. In the world of investments, the era of organizational character and attitude along with a look towards the future is what is the call of the day.