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Before I start I should acknowledge Peter Fitzgerald from Insinger DeBeaufort Asset Management who both inspired me with a recent article and also provided much of the data herein.
In 1997, an investor asked his advisor –
“do you know the difference between a long term investment and a short term one?”
Before the advisor had a chance to consider his response, the investor quickly replied.
“A long term investment is a short term one gone wrong.
” He was feeling a little upset, having invested a substantial sum of money into the Asian equity market just prior to the Asian financial crisis. What started as a speculative gamble became a long term hold. If this investor had simply held on, he would have done very well. The key to success here was
a) not being leveraged and therefore a forced seller and b) having the emotional discipline not to panic and sell after a difficult period.
This conversation should be remembered when considering investments, it is very important to take a longer term view and ask yourself what is really happening in the world and how should one position a portfolio to take advantage of this. Timing is also important for single lump sum investments regardless of what you will hear. If you buy something cheaply (say after it has been reduced by 20%), you will have a greater chance of making money. The issue is that you must also structure your portfolio to ensure you don’t go bust if you are wrong! This is not easy as we are generally all overconfident in our ability to predict what will happen and our minds then play tricks on us after the event. We generally state that what happened was obvious but the reality is we are just using information that came to light after the event.
However it is interesting to note that the DJ Eurostoxx is trading at a P/E of just 9.5 and with a dividend yield of over 4%. This sounds like a better investment than 2 years ago but perversely investors are less inclined to invest now than they were 2 years ago despite the fact that many have investment time horizons greater than 20 years. Perhaps they will wait until all the good news is priced into the market again before investing?
This is a question I am faced with on a daily basis, potential investors and clients asking me whether now is truly a good time to buy. The honest answer is that I don’t know if things will go lower, I think they may but we will only truly know the answer to that question when the event has passed. My answer is always the same. The markets are greatly discounted and now is a good time to get in, assuming you have a longer term view and are not looking for a quick buck. Casino’s provide a quick buck, financial advisors provide investors a longer term growth opportunity in a well diversified and managed portfolio of investments designed around the specific investors risk profile, time horizon and ability to handle volatility.
With interest rates staying steady or lowering and the constant threat that they will continue to stay low people are looking for alternatives to protect their money against the ever increasing affects of inflation. I would suggest as I do most months that the best way forward is to seek professional advice from a financial advisor that you trust and can work with. There are plenty of opportunities in the markets but advise needs to be specific to your needs and not generic.
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