The Way To Go Is Against The Flow

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There are basically two kinds of investors in the stock markets. There are those who treat the market as a business phenomenon, and those who treat it as a poker game. The accountants, and the gamblers. Unfortunately it’s the gamblers who make the head-lines when they pump prices up like party balloons, and make headlines again a short while later when the balloons pop and thousands of foolish followers lose their savings.​

There’s nothing new about this. There’s something in human nature that can’t resist a get-rich-quick scheme, however fantastic. One famous example dates from 1720, in London, England, when the shares of the South Sea Company (business sector — slave dealing) went from 128 (pounds) in January to 1000 in August, then back to 124 in December. That event went down in history as the South Sea Bubble.​

The better-regulated stock markets of these days don’t go as wild as that, but over the last 100 years in North America there have been over 25 market crashes, or slumps, or corrections, which at the time may have seemed like the end of the world to many investors. Nevertheless, after every setback, the market first recovered and then went on to reach new heights. For a simple reason — the gamblers don’t drive the long-term market. It’s driven by new products, new services, new inventions, which create long-term growth and upward progress.​

My advice to my clients is to choose investments for their long term value, buy them, and hold on to them for as long as possible. Between 1980 and 1996, the S&P 500 index (US companies) enjoyed an average annual increase of 16.2 per cent, despite the Big Correction of 1987 — a sudden drop in value of 33.5 per cent.​

The short term trend may be like a roller coaster, but the long-term trend is a steady climb. And I also advise my clients, when everyone else is chasing balloons — hi-tech, gold, leveraging, whatever — to go the other way, the slow, business-like way to success.​

Bob Krembil, co-founder and past chairman of Trimark Investments, a great Canadian mutual fund success story, summed up his investment philosophy this way: “Too many people think of the stock market as a casino. Instead, think of the stock market as a way to do business.”​

And I add a further bit of advice, which is to get professional help when making your investment decisions. Calculating the true worth of an investment is incredibly complicated. And you’ll be better able to resist the mass hysteria generated by promoters and the media when you have a trusted advisor at your side.

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