US billionaire Warren Buffett, as ever, is not far off the mark when he says investors should “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”.
It is a sentiment worth remembering as the stock market rally which has run since March appears to be tiring and, on cue, the usual voices are asking again if it is time to get out of equities.
They ponder the imponderables, such as how much further ahead can stock prices get of corporate profits that may never materialise and whether the dam of cash which could power a serious equity resurgence will break or hold.
They run for cover at temporary frights and endure sleepless nights worrying if cash is becoming a wasting asset.
It is disturbingly easy to let emotions rule financial decisions since you can now find an “expert” point of view that matches just about any scenario you want to worry about.
Investors would be wise to remember that, although reading, listening to and watching financial media can be entertaining, it can also be confusing, if not outright harmful to your long-term financial success.
Perhaps they should pay more attention to recent TV programmes about Mr Buffett, the world’s most successful investor, who never tires of saying that it is a fool’s errand to try and time markets. He has pointed out that, instead of taking a long view, many investors have had experiences ranging from mediocre to disastrous.
Mr Buffett explains that there have been three primary causes:
High costs – usually because investors traded excessively or spent far too much on investment management.
Portfolio decisions based on tips and fads rather than on thoughtful, quantified evaluation of businesses.
A start-and-stop approach to the market marked by untimely entries (after an advance has been long under way) and exits (after periods of stagnation or decline).
Investors, he said, should remember that excitement and expenses are their enemies.
They should also, perhaps, consider the recent 40th birthday of the M&G Recovery Fund which, not long into its life, saw markets fall by 75% during the 1974 oil crisis.
Did it overcome that?
Look at the figures: £1,000 invested in a building society in 1969 would now be worth £10,000, but invested in the M&G Recovery Fund it would be worth £314,000.
That illustrates that, even with short-term disasters and market peaks and troughs taken into consideration, long-term investing remains the sensible – and profitable – option.
Article courtesy of The Press and Journal
Monday 23 November 2009
