Same Industry, Very Different Results

Sometimes a picture does say it all. Check out this chart comparing Lowe’s ($LOW, gold line) with Home Depot ($HD, black line).

Notice how the daily cracks and burps are nearly identical. But over the long term, these stocks are very different. This is an important lesson with investing. Daily movements are strongly impacted by a company’s industry, but that impact drains little by little each day.

When most novice investors go about investing, they naturally ask, “what does the company do?” As odd as this sounds, that’s not as important as you’d think. Instead, the really important question is, how well do they do it?

With investing, you hear a lot of talk about “portfolio defense.” In the end, I think the best portfolio defense is owning a really good company.

Posted by Eddy Elfenbein on September 10th, 2014 at 2:35 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.