A number of years ago, Fidelity Investments carried out an internal study on the best performing policyholders they had. It turns out the clients with the best performing investments were dead people. And the second best performing? People who had forgotten they had a policy with Fidelity.
It turns out that this internal study never happened but it still sends out a very important message.
Before you investment money, know what they end game is. What do you want to invest for? How long do you want to invest for? When the world around you is going a bit crazy and the media is full of stories is is always hard to keep focused on the end game and don’t go messing around with your investments.
Capitalism is what underpins the world’s economy and is overwhelmingly the most successful economic model that mankind has devised. People who invest in an enterprise are taking a risk with their capital and are therefore entitled to share any financial rewards – just as they should accept any losses. This simple principle is followed in every corner of the world from the dusty markets of third-world villages to the board rooms of the world’s richest corporations. In more sophisticated markets, the rules of this process are codified by formal capital markets and most investors participate through tightly regulated exchanges of shares and bonds.
Abraham Okusanya presented at conference I was at recently and said “Nothing can beat equities but the journey can be painful.” He went on to say that “bear markets are features of the market, they are part of the journey.” In other words, if you want exposure to the best performing asset class in the world, be prepared for lots of ups and downs along the way!
When the 2008 global recession happened, lots of investors moved to cash. Or even worse for a lot of Irish investors, they thought that Irish bank shares were a great option (one client complaining about fund managers losing him money, claimed he could do a better job. He put 100% of his pension fund into AIB shares).
Moving to a safer asset class with the intention of moving back when things improve is a sure fire way of losing money. Remember, no one rings a bell when the markets hits the bottom. And the biggest gains are just after they have stopped falling.
As long as you have a well diversified portfolio of quality companies, your investment will come back in value.
Next time you are feeling that you need to make a change to your investment portfolio, remember what the world’s most successful investor Warren Buffett said: “Lethargy bordering on sloth remains the cornerstone of our investment style”.
If you have any questions, drop me an email at firstname.lastname@example.org