I was invited to spend a full day with arguably South Africa’s top asset manager; you go there with very high expectations hoping to get all the answers. These are the guys with the enviable track- record of consistently beating the market and their peers. Surely, they must know something the rest of us don’t. A secret recipe for success or at the very least a crystal-ball.
I was initially disappointed when it became apparent that even the smartest guys in the room don’t have all the answers and then the penny dropped, there is no “holy grail” or investment secret to successful investing.
Successful investing is simply about following a disciplined process and applying the basic principles of investing, which is very comforting if you think about it. Imagine if your pilot tried out a new landing technique every time he landed or your heart surgeon started experimenting with the tried and tested method of doing a bypass. Why is it we are always looking for the next big thing or questioning the known facts of successful investing notwithstanding empirical evidence backing-up the data.
So, what are the basic principles of investing. Equities (shares) are the only asset class capable of generating inflation plus growth. When investing in shares the minimum investment horizon is 5 years. Differentiate between price and value, beware paying a premium for a good “story”. Diversification is the only free lunch when it comes to investing. Volatility is not risk. Avoid herd mentality. Manage your emotions, fear, and greed drive irrational investor behaviour. Apply common sense to the investment case.
One of my favourite Warren Buffett quotes is undoubtedly, “Investing is simple, but not easy”.
Mcomm, CFP®, HdipTax
T. 021-851 3746