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In this day and age of instant gratification, constant information flow, and the general speed of doing things, people constantly need to be kept entertained and constantly need to be “seen to be doing something”. If you look at the first graph below you will see the Monster Beverage share price from inception in 1985 to date. If you invested $ 10,000 in December 1985 into the share, in June 2018 it would be worth around $ 4,300,000 and this is quite a bit lower than its peak of $ 5,260,000.

Chart 1 : Monster Beverage Share Price ( Since Inception – June 2018 )

Source : Hereford Group (30 June 2018)

In the recent Berkshire Hathaway annual investor feedback, Charlie Munger stated that “when there was nothing to do, Warren Buffett was really good at doing nothing”. The problem with the graph above is that because of the scale some very large reductions in value are not shown, and it is during these reductions in value, that people tend to want to “do something” and it is here where value is lost. Another one of Warren Buffett’s famous quotes is that “the big money is not made in the buying and selling, but in the waiting”.

Even the second graph is quite difficult to read. By March 1986 your $ 10,000 would have been worth $ 27,000 (a tidy profit). Unfortunately, in October 1987 your $ 27,000 would have reduced to $ 2,300, and in January 1996 your investment would be worth a paltry $ 770. By this time, most of us would have thrown in the towel and just taken what could be salvaged out of the investment and disappeared with our tails between our legs. From January 1996 until April 2003 the investment went up to $ 6,100.

Chart 2 : Monster Beverage Share Price ( December 1985 – December 2005 )

Source : Hereford Group (30 June 2018)

In October 2007, we think we have hit the jackpot with an investment worth $ 870,000, but in August 2008 we are back t $ 274,000, a lot more than our initial investment but a lot less than the $ 870,000 it was a few months previously. So, what to do now? Panic and sell!! If you did that you would be kicking yourself, because in July 2012 the investment would be worth $ 1,863,000.

Unfortunately, investment growth is never linear; it is filled with peaks and troughs. If the basic fundamentals of the company haven’t changed, for heaven’s sake, don’t sell the share. The same holds true for unit trusts and other investments. Sometimes doing nothing is the toughest thing to do but it is usually what is required in your investment portfolio.

Kind regards,

Barry Hugo

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