Market of Stocks – not a Stock Market

The phrase ‘It is not a stock market. It is a market of stocks’ is extraordinarily meaningful. It is important because it empowers the prudent investor to take their focus off of short-term stock market gyration/volatility, which is unpredictable and therefore unknowable, and instead, place their focus on the merits, benefits and future potential of the individual businesses that they personally are partnering with.

In the long run, the successful operating results of the individual business invested in will drive shareholder returns. Consequently, prudent long-term investors should not be worried about what the market may or may not do in the short run, but they should be very concerned about the future operating performance of the businesses they are invested in. Common sense would indicate that their future returns will be a function of the success of the business they are owners of, and independent of the overall stock market.

It should become crystal clear that the stock market had little or nothing to do with the returns that the long-term owners/shareholders of the companies they invest. The following examples of companies that have dramatically outperformed the S&P 500 over various time frames are offered as clear evidence.

  • Cognizant Technology Solutions (NASDAQ:CTSH) 49 Times Better Than the Market since 12/31/1998: Annualized Return: 32% [S&P 500: 4.2%]
  • Starbucks Corporation (NASDAQ:SBUX) 10 Times Better Than the Market since 9/20/1995 : Annualized Return: 21% [S&P 500: 7.8%]
  • Google Inc. (NASDAQ:GOOGL) 5 Times Better Than the Market since 8/31/2004: Annualized Return: 24% [S&P 500: 7.5%]
  • The Priceline Group Inc. (NASDAQ:PCLN) 83 Times Better Than the Market since 12/29/2000: Annualized Return: 25% [S&P 500: 4.1%]
  • Biogen Inc. (NASDAQ:BIIB) 32 Times Better Than the Market since 12/29/1995: Annualized Return: 28% [S&P 500: 7.6%]
  • Apple Inc. (NASDAQ:AAPL) 23 Times Better Than the Market since 9/29/1995: Annualized Return: 26% [S&P 500: 7.8%]
  • Visa Inc. (NYSE:V) 2 Times Better Than the Market since 13/31/2008: Annualized Return: 23% [S&P 500: 8%]

I have presented extreme examples in order to make my point. But as you study the performance, especially the performance of the extraordinary companies, it should become clear that the stock market [S&P 500] had little to do with the returns that the long-term investors/owners/shareholders of these companies received.

The shareholder returns that each of the following companies generated are closely related to the business results that each of these growth stock generated. In the long run, earnings drive market price and represent the source of shareholder returns. Not the stock market, but the specific company’s operating results.

With each of these examples, we see long-term earnings growth rates that are several times greater than the S&P 500. This clearly illustrates how and why the businesses you invest in are significantly more important than what the overall market or averages are doing.


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