The Power of Market Agnosticism

You don’t need to know where the market is going to make money in investing. Focus on what is important and knowable.

Investors tend to preoccupy themselves with the general level of the stock market much more than reason would expect.

If their preoccupation was simply on an intangible level that had no bearing on their actual decision making, then that would be acceptable. However, most make their decisions solely based on these market-centric factors.

Other factors that investors overly focus on are inflation and where it is heading, the fear of an impending recession or economic crisis, the timing of the Fed taper, when and if the coronavirus will strike again, conflicts and wars and the list is endless.

How can you invest intelligently if you worry about all these things that are mostly unpredictable? How can you focus on high-quality businesses when you spend your days worrying about inflation? 

Sure, sometimes you can use all these events to time the market correctly, but there will be times when you are dead wrong – causing you to buy high and sell low.

Why does one need to predict the future with such staggering accuracy to make money? 

Do businessmen sell and buy their company back every now and again? No. The wealthiest people in the world have owned great businesses for decades, and it has worked out great for them.

Why does someone who buys the shares of a company need to care about market-related factors or what is driving the current uptrend or downtrend if he is happy with the prices he is buying at? How does it matter?

Does not a good enough price and business quality provide a sufficient margin of safety for what the future may bring? That is, if you believe in the long-term prosperity of capitalism – if you don’t then you shouldn’t be reading this. 

A good company will go on executing its business plan and creating value regardless of market-centric factors. Sure, the current state of the market affects sentiment, and sentiment affects the general willingness to lend, borrow, invest and transact.

But these are short-term and fleeting – over time what will carry the overwhelming weight of the success or failure of your investment will be the quality of the business and the valuation you paid for that business.

The worries about the level of the stock market and the trajectory of the economy will fade into the background and be completely forgotten as the business continues to create value for its shareholders. At the end of the day, that is all that matters. 

Yes, there is a correlation between the price direction of the stock market and individual stocks. Even if you own the best company in the world, it can still drop violently when the stock market drops.

But while the correlation of any individual company with the stock market is close to 1 in the short-term, it is close to 0 in the long-term. It is the short-term time horizon that makes investors think that investing in individual stocks is a gamble. There is always uncertainty and volatility, but if you know what you are doing in the long-term you will achieve a great result.

Individual Company to Stock Market Index Correlation, Over Time

So if it’s the long-term you are betting on, why preoccupy yourself with short-term matters?

Why waste time thinking whether it will be a V-shaped or U-shaped recovery or if they are going to rally or crash in the next 3 months? You don’t need to think of all this nor do you need to be able to predict them to make money. 

If you like a business after doing sufficient work on it and the valuation offers a margin of safety from its assessed value, then invest in it. There is no one that rings a bell to let you know just before the market starts going up. 

Focusing on timing probably won’t get you far, but focusing on valuation can get you very far in the game of investing.

To win in the game of investing, you have to be cool headed and never let stress, fear or the fear of missing out influence your investing in any way. You can’t rely on market-centric factors to hold your hand while you hold your investments. 

You must know your companies extremely well and be self-confident in your assessment of their value – because indeed the best time to be buying is when others are capitulating and throwing in the towel. 

Knowing your portfolio companies well will help you hold when markets are crashing and you are in the red. 

Being market agnostic while having a fundamental value orientation when investing can give you extraordinary returns.

 “A man who chases two rabbits catches neither.”


“Who’s the more foolish, the fool or the fool who follows him?”