Latest News
News
It's like, riding The Big Dipper….
Being an investor in the equity markets is much like riding the "Big Dipper". When I grew up, the "Big Dipper" was a world famous roller coaster ride. Scary, infamous, exhilarating and huge were but a few of the adjectives describing this monster of its time. On the Big Dipper, a boy could demonstrate how brave he was and afterwards spend his remaining pocket money on candy floss, while reliving the adventure with his friends. This was the sort of thing young boys would fantasise about, diligently saving every cent to achieve this life and death goal, things have changed a little since then and I can't imagine that Playstation 3 would conjure up similar stories in 15 years time.
However this brings me to the emotional roller coaster ride the equity markets put us through every day. Since August 2007, the ride has been slightly more adventurous than normal, in the greater scheme of things, nothing has changed, and the effect on our psyche is still amazing. We are gripped between the fear of losing money in a falling market and losing out on the spoils of a rising market. The world bombards you with information and you are left to decide. "Buy when everyone is selling", "Invest when blood is in the streets", "Invest when it makes you sick to do so" are all clichés that are used with macho discontent when markets are rising, but when things are not as rosy it will only be the brave and emotionally tough that can follow through and execute these statements. They will in time be called geniuses and the rest of us will promise ourselves to buy the next time this scenario repeats itself.
Herein lies the problem, it is never quite the "same" and it seems we are always convinced that this time it is different, the world is going to bits! Sub-prime, credit crunch, oil prices, food prices, inflation and the list can go on to infinity. Warren Buffet says, "Investing is like dieting, it's simple but it is not easy." You know what is required, consuming less food and exercising more but this is not that simple especially when the room is filled with delicious chocolate cookies. It's emotionally tough to stick to what you know will work while being bombarded by external noise.
We might find some comfort in the words of one of the most famous investors of all time, Sir John Templeton: The time to buy, he often argued, is at "the point of maximum pessimism." There are two types of investors. Pessimists(Bears) and optimists(Bulls): In a rising market a pessimist will tell you why the market will be going down soon and when this inevitably happens, often years later, they will boast about their superior future vision. I am right it did happen. During this time they would probably have been sitting on the sidelines losing out on the growth while the market was in the bull faze and when the markets have sufficiently declined they will not have the courage to enter the "bull-ring" hence losing out on the upward cycle to follow. An optimist will stubbornly believe that all will be alright. When the market falls they will simply buy more or deal with the consequences as they appear. In their view of life, it makes no difference what the future holds but if you are not in it, you can't win it!
The two major emotions associated with the stock market roller coaster ride: Fear and Greed. In times like this it is important to control your fears, be brave and stick to what you know will work. Get on and enjoy the ride, it makes life much more interesting and you will be rewarded with candy floss in time to come.
The opinions expressed are those of the author and are not held by PSG Consult unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.