Take a Look Under Your Hood

Days before the recent market panic in late August, Warren Buffett made the biggest acquisition in Berkshire Hathaway history. With oil prices down as low as they’ve been in years, he bought $5 Billion worth of Phillips 66, and added to his already hefty IBM holdings.

What is equally interesting to note is that he also didn’t sell anything during that laser quick period in August when market index prices fell 11% in a week.

Why does it seem as though Buffett, and other great investors like Ron Baron, always keep on buying great companies they believe in despite market turbulence all around them that paralyzes the masses?

The biggest reason is that they’re not focused on investing in “the stock market”. They recognize that “the stock market” is nothing other than a medium to buy and sell shares of all the companies in which they own shares.

They’re focused on the prospects of the companies they own, and those they’re looking to acquire, and their ability to prosper for years to come.

Investing is Owning

During market corrections like we’ve recently experienced, it’s always a great idea to focus on the big picture of what investing really is, and why you’re even engaging in it.

Investing is owning plain and simple. We can never forget that. Long term growth is not obtained through “trading”, i.e. buying and selling.

The growth we need our Retirement Buckets to experience is achieved when the value of the companies we own (and the dividends they pay) grow over the long term.

What Do You Own?

When you think about investing, or you discuss it with friends and/or family, how do you describe your experience? Do you talk about investing in “the market” or do you talk about the great companies you own?

One of my strongest recommendations is to focus on the latter: owning companies. After all, that’s what you’re doing.

For example, if you own shares in Schwab’s Large Cap ETF, you own a piece of 767 companies.

Let’s look under the hood for minute and examine the companies you own if you’re invested in that fund or a similar large cap index:

  • Apple
  • Microsoft
  • Exxon Mobil
  • Johnson & Johnson
  • GE
  • Berkshire Hathaway
  • Wells Fargo
  • JP Morgan Chase
  • Facebook
  • Amazon
  • Boeing
  • Walgreens
  • Honeywell, and
  • UPS to name a few of the top holdings

If you own the iShares MSCI EAFE Index ETF or The Schwab International Index ETF, you own a piece of 934 and 1,216 companies respectively including:

  • Nestle
  • Novartis
  • Roche Holdings
  • Toyota
  • HSBC
  • Sanofi
  • Bayer
  • British Petroleum
  • Novo Nordisk, and
  • Royal Dutch Shell to name a few.

Quite a List

Stop and think about this for a moment. If you’re invested in any of those funds, or a similar fund, you own a piece of each of those incredible companies. And, we’ve only listed the top holdings in a few of your funds in just two of the asset classes where you own.

During temporary market corrections like we’ve experienced lately, a great idea is to take a look at the list of the top companies you own pieces of and give some thought to their prospects in the years ahead.

What will the demand for the company’s products and services be in the future given technology and all the demographic shifts going on all over the world?

Given that only one billion out of the 7.3 billion people in the world own smart phones, what is the likelihood that Apple’s long term future is bright?

Given the explosion of diabetes due to the ‘westernization’ of diets throughout the world, do you think that Novo Nordisk has a bright future given that it currently has a 50% market share of the global insulin market?

Given the infrastructure and database put in place for millions of buyers who have been conditioned to shop on-line for anything and everything, how well do you believe Amazon is positioned to perform in the future?

Given the massive ascension of millions and millions of people in developing countries into the middle class, how many more cars do you believe Toyota will sell in the next 20 years? How many airplanes will Boeing sell to airlines catering to increased business and pleasure air travelers? How many Walgreens locations will open up to handle the massive demand for prescriptions and personal care products?

Focus on Owning

If I had to identify the top characteristics of my most successful members, and those whom I’ve studied for over two dozen years who have created true financial independence for themselves, one of the most important would be what they focus on and how they talk about their investing experience. They don’t talk about “the market”, or points on the Dow.

They talk about the companies they own.