This document discusses how past stock performance should not influence long-term investment decisions. It notes that prices have no memory, so a stock that has doubled or halved can still continue rising or falling. The example of Apple from 2005 to 2012 is given, where the stock continued rising substantially even after tripling in six months. Fundamental analysis of a company's growth trajectory, valuation, and management should be the focus, not where the stock price has been recently.

1. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser. All charts courtesy of Bloomberg.
Thought for the Week (254):
Prices Have No Memory
Synopsis
 Fundamental investing for the long term should be focused on where a stock is going and not where it’s been.
 Prices have no memory. A stock that has doubled can still go higher and a stock that has been cut in half can certainly go lower.
The Human Element
Let’s say that we are all part of the same investment team and just spent several weeks researching a company. We determine that fundamentally the growth trajectory looks sound, valuation is attractive, and management is impressive. As a result, our work indicates that the stock is a great buy.
Prior to placing the order, we quickly pull up the stock chart (below) to see how the stock has traded recently, only to learn that it’s already tripled over the last six months.
Having seen this recent price action, be honest with yourself and answer the question, “Would this chart make you rethink your original thesis?”
The unfortunate reality of being human is that we are often conflicted over the battle between logic and emotion, and separating these two powerful forces is not easy.
Think about the last time you were at a casino watching roulette. Remember that computerized screen above the wheel stating the number and color of the last ten rolls?
The casino will explain that the purpose of this screen is to assist gamblers in placing future bets by showing where the ball has landed already. However, in reality this screen provides absolutely no value whatsoever to the gambler.

2. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser. All charts courtesy of Bloomberg.
The past is the past and the fact that a red number has been hit the last 5, 10, or 500 times in a row is meaningless. The upcoming roll has a 50% chance of landing on a red number and a 50% chance of landing on a black one. Furthermore, if the last five rolls all hit the number 31, then the odds of the next roll landing on 31 is the same as the odds of the roll landing on 2, 9, 21, 32, etc.
NOTE: The casino is in no way attempting to tilt the odds in their favor. Just as the screen cannot help a gambler with future bets, it also cannot hurt him either. The point here is that the past provides no value in predicting future events for either party.
This dilemma is known as the “Gambler’s Fallacy” and whether we know the odds or not, human nature compels us to look at the screen, even if for nothing more than morbid curiosity. The real question is would knowing where the ball has landed in the past incorporate into your next bet?
Keep Looking Forward
The stock in the example above was Apple, right around the introduction of the iPod back in 2005. The chart below extends the stock’s performance up to the release of the iPhone 5 back in September 2012.
Had we chosen not to not invest due to the stock chart (the past) versus what our fundamental analysis indicated (the future), then we would have missed a phenomenal opportunity. Investing $10,000 in Apple back in early 2005 would have been worth almost $156,000, not including dividends, in September 2012.
“Prices Have No Memory”
One of the mantras preached by Chris Bertelsen, our Chief Investment Officer, is that prices have no memory. A stock that has risen by 300% in six months can still rise another 1,400%, as Apple did.

3. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser. All charts courtesy of Bloomberg.
Stock charts are helpful tools for fundamental analysis but always remember they can only show us the past. A long term investment decision must be made by considering where a stock is going and not where it’s been.