Time Travel Investing

Continuing on in some posts about Some Great Financial Reads, just finished reading Dave Barry's Money Secrets. It's hysterical, like all of his books. Albeit not a serious book, you can tell from reading it that Barry does know some stuff financially. I found the most interesting section to be from Chapter 12: How to Get Rich in the Stock Market (pg. 115):

"But getting back to the stock market: It can be a good way to make money, but only if you know what you're doing. You do NOT buy stocks based on the latest fad, or some "hot tip" from your uncle Herb. For one thing, you don't ahve an uncle Herb. For another thing, the only way to make money in the stock market is to use a rational system, based on solid information, not guesswork. The only proven way to make money in the market is to follow this three-step procedure:

Step 1: Gather all available financial data on the top one thousand stocks for the past twenty-five years.
Step 2: By conducting a thorough analysis of each stock - taking into consideration its performance against the overall market, splits, price/earnings ratio, earned-run average, etc. - select the ten stocks that have performed best in this time period.
Step 3: Using a time machine, go back twenty-five years and buy these stocks.

This system is pretty much foolproof except for one teensy flaw, which you may have already detected: You are way too lazy to do the research. Most people are. This is why most people use stockbrokers."

Though this is a funny take on how to find the best 10 stocks over a twenty-five year period, there are some lessons to be learned here. Many of the best investors really do find investments that they feel will outperform the market not over a short period but over a long period. Sometimes with these individuals, their best skill is the ability and patience to wait it out and do nothing.

Mohnish Pabrai discusses this principle in detail in his article Buffett Succeeds at Nothing. Though it's a few years old, it's message is still worth paying heed to.