“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett
Since the beginning of 2016, there has been an influx of articles detailing the post mortem for the year. A lot of it was bad news by the way.
However I thought to myself, a lot can happen within the few days remaining in the year, good or bad. When looking at the recent past highlighted in these articles, very few people, if any could have anticipated what occurred in the coming 11 months, I’m shocked there are still people who think they can predict the future (I must admit that I am a long term Investor, the point of this article is to highlight the unpredictability the future).
As I was reading these articles, I received a picture from a close friend of mine – he tattooed his girlfriends name on his arm and visa versa. He encouraged that I do the same one day, the thought made me uncomfortable. I replied that the future has an infinite range of possible outcomes, and something as permanent as a tattoo seemed like taking on too much risk. Nonetheless, I wish them all the best.
Back to investing, all that is happening now makes me think of something Charlie Munger once said about investing: “it’s not supposed to be easy. Anyone who finds it easy is stupid”. The reason it is so difficult is that investing is future orientated, and the future is unknowable.
When I started investing I thought it was easy, this is evidenced by the single point estimates I used when valuing companies – I must admit I was wrong 99.9% when looking at how differently things played out in comparison to my valuations.
Now as investors, we still have to make decisions even though we are cognisant of the above, we need to manage and control risk and move forward as cautiously as possible. We need to check our emotions at all times. Nothing is stagnant, we have to take shots at moving targets.
So what we need to focus on, is controlling the knowable. Understanding your position. It is true that we don’t really know what will happen tomorrow, but we can at least try to manage what we know.
Being the first month of the year and of course the dreaded cash crunching January, do not let the many emotions that come with these times affect your objectivity when it comes to your investments. Take it easy, chill! And of course the noise churning out from the news won’t help either.
Frequent trading is one of the sure ways to waste and lose money. You get nothing from that, except for balling on those transaction fees, and subsequently making your broker richer.
The basics should always prevail, what I am trying to say is that we should always remember that we are in the business of making profits from the many public and private corporations that are at our disposal. Therefore what we should focus on what is the real returns (dividends and earnings growth) we receive from these corporations. These are the economics of investing.
From centuries of economic history it is clear for all to see that you can rely on adequate returns from the stock market for your investments. And the longer you stay invested, while reinvesting, thus allowing the Gods of compounding to do miraculous things with your hard-earned money, the better.
Therefore, I close by saying keep calm, be cautious and invest on.