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Less greed, more patience, fearlessness… and reason.

unitedlife07

Peter Bobik
Consultant
Bratislava, Slovakia

Recently, I am often asked whether to sell assets purchased in the past. Investors are again overcome by fear. The answer is difficult and not short. I will try.

Things are happening on the markets, shares are falling. And not a little. More than 15% in the United States, more than that in Europe and even more elsewhere. The correction is back, bear market possibly as well. Bonds are earning practically nothing, economic stimulation is not cheap. Commodities story is even funnier… I drive a diesel and it makes me happy. On top of that, it is entertaining to watch oil suppliers’ chess game face to face with the looming imperative of renewable energies and Elon Musk’s substantial input. This story is amusing. Commodities prices are falling dramatically. China, slow boom in the EU and… Markets are bathing in many shades of red. But I did not want to talk about that.

Majority of investors’ irrational actions are back – practically no one is buying. A lot of investors is thinking about selling their assets, they are afraid. This is the same all over the world (sell out is going on everywhere), across all clients segments (here the wealthy and the poor are equal), regardless of client’s age or their investment competencies. And this is going on and on. Still, the reason points to the side of opposite actions. Why? Even if not profitable, this behavior is understandable. What are the reasons for it?

Assets and wealth are the result of hard work or luck. There are limits, money we lose is very hard to earn back…and luck does not have to be on our side for the second time. To take a risk is not natural and the goal is not to lose. Not to be afraid in a situation when news come from all sides about possible negative development, escalation in tensions, black perspectives… not to be afraid is difficult. And only a small number of people can handle difficult. But to be afraid is expensive. Losses hurt. What to do?

I will use a quote, although uttered in different circumstances: ”Don’t be scared!“ This is a standard trend; it was here, it is here and it will be here. In times like this do not sell more. If you have a diversified portfolio, this is a sensible strategy.

We earn money for consumption, our own or someone else’s. Money in itself does not mean anything to us. An investment is a delayed consumption. The longer it is delayed, the more illusory it is. Money later is worse than money earlier. If someone delays your pay check you are not going to love them. That is understandable. However, it is irrational when investment is concerned. Time is beneficial to your investment. What to do with this? Do not invest short term, that is not investing. I prefer poker, your chances are better in the same time and depend more on competencies. Stick to the investment horizon and do nothing before it is over. Math is your friend here. If your investment is diversified and your portfolio management lasts for decades, it works.

It makes us happy to earn a lot, high returns are better than low, greed is good… says Gordon Gekko. And even if we do not agree, he certainly is a spirit of advancement, motivation for more than one torchbearer. But he is not your friend when it comes to investment. Reasonable rate of return is. At the beginning of the best Bond movie (Casino Royal), Le Chiffre (world terrorists’ banker, as M calls him) is asked if he believes in God. He answers: ”I believe in a reasonable rate of return.“ And I add… in the number that is very good in individual assets classes… on the investment horizon. To buy something cheap is profitable. If we are buying a car, a phone or just anything, we are acting sensibly. But not when we invest. No one is interested in the cheapest assets, i.e. falling assets. What to do? Buy when it is cheap, or even better, buy regularly. Here you cannot go wrong.

 

To act rationally, to control your greed, not to be afraid during market turbulences, to be patient. If this was easy, it would be happening. But the opposite is happening; sticking to the correct strategy is difficult. As any other way of making money. But there are no other paths to success. I cross my fingers so that you make your next decision rationally. And if you do not wish to be rational, then do not invest. It is better to spend the money, you support green (the color of growing markets).

 

 



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