What bananas tell us about stocks

My family has owned businesses for quite some time, nearly 50 years if you count prior generations.   

One of my favorite ideas about the typical day-to-day operations of any business comes from my father.

Customers often come in and ask, “How is business?” He gives them the unique response: “It is like bananas, it comes in bunches.”  


Banana Benchmark

If you are involved with an enterprise, you may well have experienced the same kind of pattern.

Now, let’s turn to the stock market and how it relates to those long, yellow, squishy, and irregular shaped fruits.

One of the areas where investors get very frustrated in the stock market is the irregular returns they may experience.  

Price Fluctuations

I have clients who have owned a stock for a long time and nothing takes place. All of a sudden, after five or more years, the holding goes up a great deal in value in a month.

For a nine-year period, the gain is zero. The tenth year, the increase is, say, 100% or more.  

You get used to this kind of price action on stocks but much of it stems from the underlying operating performance of a company.

Or it may be a corporate transaction which dramatically transforms the business such as a merger or buyout deal.  

Patience Rules

Investing requires the patience to let these things take place and selecting strong management teams and high quality business to give one confidence you want to own these companies.  

In my opinion, it is a good idea to structure a portfolio with businesses which are more stable and pay quarterly dividends to help give one peace of mind, in addition to quarterly income.  

In combination, you begin to have confidence in what you own, as opposed to wanting to sell whenever the market gets crushed, which, as we all well know, happens from time to time.


The Oracle

Finally, Berkshire Hathaway recently released the annual shareholder letter from Warren Buffett.

Some people love his legendary humor and quotes, but in my opinion, the real wisdom to be gleaned is the analysis of economic conditions and business which Buffett has demonstrated for so long.  

In this year’s version, there were figures about crop yields, annual production of agricultural products, a comparison of costs of electricity produced in different states, and plenty more. If you want to understand why Berkshire Hathaway became the entity it did, read on.

Photo Credit: torbakhopper via Flickr Creative Commons