As the military adage goes, “amateurs talk tactics, professionals talk logistics.” An interesting bit of wisdom that reminds us that we can win the battle, but still lose the war. How does this apply to investing? What kind of stocks would come out on top if we applied this yardstick to the market?
In investing, tactics are the daily noise of ticker tape commentary, articles on why the market moved a fraction up or down on any given day, and forecasts on what the stocks will do in the near term. That doesn’t mean the information is wrong or useless, but for investors, these data points are short term clutter.
Companies, too, can have this tactical outlook. Peter Lynch advised avoiding companies that presented ceaselessly on the investor conference circuit, since they often had more hype than substance. Similarly, no investor should want a CEO who juices quarterly results to get a bonus tied to short term targets. Perhaps meeting that quarterly target is tactically wise, but it can be logistically shortsighted and paint the company in a competitive or financial corner in the long run.
In an inversion of the military quote, the amateur investor is wise to leave the tactical level to the so-called professionals. Let traders and high frequency algorithms urgently make millions of daily bets against each other, and instead look years ahead. Investing in farsighted, superior companies can lead to market-beating returns with no sleepless nights. The officers of this class of company don’t think in quarters, they think in multiyear business cycles.
One of the companies with the strongest long term vision is Nucor Corporation (NYSE:NUE). It has a strong financial balance sheet and uses it to be countercyclical by investing in capital equipment and making acquisitions during downturns. The no layoff policy isn’t charity, it is a smart long term business plan to hang onto skilled labor in order to be at full capacity for the upturn. Perhaps no move illustrates their over-the-horizon planning better than breaking ground, in the depths of the recession, on a huge new facility and locked in cheap natural gas to power their operations with a decades-long contract with Encana. Importantly, Nucor Corporation (NYSE:NUE) has a strong track record of getting it right, since it is possible to get the long view wrong, as evidenced by ThyssenKrupp’s painfully orphaned state-of-the-art steel mills in the US and Brazil. When the steel cycle finally turns, I do not profess to know, and a question best left to the tacticians out there.