Regardless of the short-term issues on the resurgence of COVID-19 driven by the Delta variant, lockdowns and restrictions, fully utilised monetary and fiscal policies alongside high inflation, the Australian and Global markets are at all-time highs. The current investment climate overloads investors with an excessive amount of information on traditional assets such as shares and property alongside speculative favourites such as GameStop and Bitcoins. It is easy to lose sight of the fundamentals of investing and below are quotes from the great investors of our generation to keep us in check.
“Never invest in a business you can’t understand.” – Warren Buffett
Many lost a fortune through the Global Financial Crisis (GFC) in investments that were not easy to understand and involved excessive complexity. While there’s likely something in blockchain and digital finance, the same caution applies to cryptocurrencies.
“More money has been lost trying to anticipate and protect from corrections than actually in them.” – Peter Lynch
Preserving capital is important. However, timing the market during and after a correction leads to investor’s becoming so focused on avoiding losses that they miss the initial positive market recovery. We have seen a bit of that ever since share markets bottomed in March 2020, with numerous forecasts for steep falls ever since and yet markets have fallen a few per cent every so often only to resume their rising trend.
“To be an investor you must be a believer in a better tomorrow.” – Benjamin Graham
If you don’t believe the bank will look after your term deposits, that most borrowers will pay back their debts, that most companies will see rising profits over time as the economy grows, that properties will earn rents, etc (and that the world will learn to shake off or live relatively safely with coronavirus) then there is no point investing. This is flippant but true – to be a successful investor you need a favourable view of the future.
“There is no free lunch.” – Anon
If an investment looks too good to be true, it probably is. Focus on investments offering sustainable cash flows (dividends, rents, interest) that don’t rely on excessive gearing or financial engineering.
If you are ever in doubt in the face of volatile market conditions, please contact one of our friendly financial advisers.
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.