January 22, 2015
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Investment wisdom
Wisdom from Shelby Cullom Davis
During a long-term investment journey, investors will inevitably encounter periods when they are led by their emotions. During such times investors often make decisions that can undermine their ability to build wealth. There are eight truths that investors need to understand to make the most of investment opportunities.
| 1] | A market correction is an opportunity for the patient, long-term investor | Long-term investors should welcome market corrections as an opportunity to purchase good businesses at attractive prices. |
| 2] | Stocks historically have been the best way to build wealth, despite inevitable periods of uncertainty | Stocks have historically outperformed all other asset classes and protected against the ravages of inflation over long periods of time, through ever-changing market, economic and political environments. |
| 3] | Be patient and maintain a long-term perspective | Over the short term, stock prices will fluctuate greatly. However, over longer time periods, stock prices should ultimately reflect their true value and patient, long-term investors may be rewarded. |
| 4] | Recognise that historically, periods of low returns for stocks have been followed by periods of higher returns | Periods of poor returns for stocks provide long-term investors with the chance to purchase good businesses at lower prices. These lower prices help increase the possibility of higher future returns. |
| 5] | Don’t let emotions guide your investment decisions | Keeping impulses like fear and greed in check, and maintaining an unemotional, rational, disciplined mindset is crucial to building long-term wealth. |
| 6] | Don’t attempt to time the market | Over the long term, stocks historically have delivered a satisfactory return. Attempting to enhance this return by trying to move into and out of stocks based on the market environment is a loser’s game. |
| 7] | Understand that short-term underperformance is inevitable | Almost all great investment managers go through periods of underperformance. When evaluating a manager, build in this expectation as it can help you to avoid making a potentially damaging manager change. |
| 8] | Utilise a systematic, disciplined investment approach | Such an approach is valuable during challenging periods for the market because it allows the long-term investor to seek taking advantage of volatility— purchasing more shares when prices are low. |