Jason Myhre: “Keep your eye on the owner, not the dog.” It comes from one of my favorite quotes on investing, which was said by this person, Ralph Wenger, a very successful portfolio manager. I like it because he has a very memorable illustration of how the stock market works. He likens it to an excitable dog on a very long leash, darting randomly in every direction. The person who’s walking this dog is walking from Columbus Circle through Central Park to the Metropolitan Museum. What is astonishing is that almost all the market players, big and small, seem to have their eyes on the dog and not on the owner. What we’re looking at is the entire history of investing in the US stock market, going all the way back to its inception and 1871. The blue line you see there with its zigzagging pattern, that’s the stock market performance with all of its twists and turns, ups and downs.

That’s the excitable dog on a long leash in New York City. That yellow line is the best-fit line for the data. It is a straight line, there’s no curvature to it whatsoever. This is simply a straightforward data analysis exercise. When you take a step back from investing, you see that it’s had a remarkably consistent experience such that you can put a straight line on this data and it’s a reasonable approximation for what has happened over the last 150 years. In the metaphor that is the owner who is walking the dog purposefully north and east, which is to say up into the right at a steady rate of progress. When you’re investing, keep and fix in your mind, that long-term trend line in investing, which is the reason you’re investing, keep your eye on the owner, in other words, rather than the dog.