“It’s like reversing a trailer”, is one of the best analogies for following your intuitive thinking when it comes to investment decisions. You have to “turn” the other way to go in the “direction” you want.
This week I want to caution investors, particularly those South African investors with return expectations based on the recent past. It is said bull markets are born on pessimism, grow on scepticism, mature on optimism and blow-out on euphoria. The difficulty is deciding where we are in the cycle. There are never any flashing lights or sirens to indicate the top or the bottom of a market cycle. You have to trust your instincts with the knowledge that your natural instincts are most likely giving you a false reading. When you feel most comfortable is probably when you should be most concerned, conversely sometimes you have to go through a very uncomfortable period to achieve your long-term investment objectives.
The before mentioned reference to long-term is the key factor in successful investing. Successful investors have longer time horizons and are thus able to look through short-term volatility to exploit short-term investor’s irrational behaviour.
I am concerned that there may be some euphoria creeping into our local market as the likes of Naspers and may other shares climb to new highs seemingly on a daily basis. Investors are quick to forget markets go up and they go down. Don’t forget Warrens Buffets advice “be greedy when others are fearful and fearful when others are greedy”.
Mcomm, CFP®, HdipTax
T. 021-851 3746