“It will fluctuate.” - JP Morgan, when asked what the stock market will do.

Last week the market took a beating. It shouldn’t, however, change anything you are doing as a true investor. In fact, a great deal of noise in the short-term often obfuscates investors from true long-term fundamental analysis. This is a major reason why investing is so difficult. Sometimes I read the news and just have to laugh. Everyone is trying to sort out a reason for why the market was down: Iraq, Ebola, weakness in Europe. Take this quote from Bloomberg for example:

“US stocks fell, while Treasuries gained with gold, as demand for haven assets climbed amid concern that tension among western nations and Russia over Ukraine will hurt the global economic recovery.”

Seriously? This is really no explanation at all. Why did this matter on Thursday and not Wednesday? Why not the week before? Why not last month?

The truth is nobody knows and nobody can know. Yet people spend so much time “trading headlines” and this really surprises me.

In fact I would argue that a great deal of market participants are not really in a position to determine longer-term fundamental values which require a great deal of study and time. Most participants are short-run oriented in nature and emotional.

But don’t take my word for it. Let’s discuss what Martin Whitman recently says in his second-quarter letter for Third Avenue Management, LLC. Whitman is a dyed in the wool value investor with a great track record. Whitman suggests: “It is extremely hard to use most conventional security analysis — see Graham & Dodd — and be focused on determining underlying fundamental values for common stocks. This is because in most conventional analysis, four factors tend to be so overemphasised for non-control investors that they lose sight of underlying, long-term values and the underlying dynamics of businesses.”

Here, per Whitman, are the four areas that many conventional investment approaches err in (my comments in parentheses):

1. A belief in the primacy of periodic earnings in determining value or prices whether those periodic earnings are cash flows from operations or accounting earnings from operations.

(Fundamental data points are important guides but there is no single point in time in isolation that determines a company’s true intrinsic value. Some companies may not have any earnings in the present. This doesn’t mean they have no value.)

2. A belief in short termism. If one is acutely conscious of securities price fluctuations — whether hourly, daily, weekly, monthly or annually one, per se, has to be focused on the short-term.

(In other words you need to know what you own and what it’s worth. Market prices are there for you to take advantage of, assuming you know the value of what you have. If you focus on the prospective price change of a purchase you are speculating. There is nothing wrong with speculation per se but I am uncomfortable doing this with my money. Half of all coin tossers will win their first flip but none of them are expected to have unlimited profits if they continue to play the game. Just because an asset has risen in the past is no reason to buy, neither is there a conclusive reason to sell just because the price has fallen. Focus on what your assets can produce and not their daily fluctuations. In the immortal words of Buffet: “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”)

3. A belief that top-down considerations, such as predicting the business cycle, the Dow Jones Industrial Average, inflation, and interest rates, are far more important investment considerations than are bottom-up factors, such as the strength of corporate financial positions, access to capital markets, earnings, or the price discount for a common stock from net asset value (NaV).

(Whitman cites only eight years in the last 85 where focusing on the top-down was critical (these include 2000 and 2008 recently). Focusing on macro opinions or listening to market predictions of others is a waste of time. The key is to tune out most macro aspects and focus more on the price you pay for certain business dynamics of specific securities. If you focus too much on the “big picture” you often miss amazing possibilities or tend to be frozen with fear at the best time to act.)

4. There is a belief that securities markets reflect a price equilibrium. At any time, the prices for securities are right (ie, efficient) and will change only as the market digests new information.

(I don’t succumb to the “efficient market belief”. In fact prices are wrong most of the time and short-term fluctuations are “random walks” full of emotions and beliefs.)

It’s not important to try and speculate which way the “market” is going to go. Don’t waste your time trying to predict exactly where the market is going. Ignore silly explanations for these fluctuations. Focus on longer-term wealth creation by centring on the why and the value. The rest will take care of itself.

Disclaimer: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by the author to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. Readers should consult their financial advisers prior to any investment decision. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

Nathan Kowalski is the chief financial officer of Anchor Investment management Ltd. The views expressed are his own.