Fundamental Investment Truths

The Wall Street Journal  recently published a commentary by Morgan Housel, a columnist at The Motley Fool, titled “Sweet 16: Rules for Investors”.

His basic premise was that with U. S. stocks near all time highs, it might be a good time to review some fundamental, and often overlooked, investment truths.  Over the next few weeks, we would like to share some of these with you.

“All past market crashes are viewed as opportunities, but all future market crashes are viewed as risks.”

If you can recognize the inconsistency of this, you are probably well on the way to understanding the fundamental premises behind the concept of long-term investing.

“A couple of times per decade, investors forget that recessions happen a couple of times per decade.” 

There is a significant correlation between recessions and market crashes.  Not fun, but normal, like blizzards and tropical storms.  This goes back to the issue of long-term investing and a clear understanding of individual risk tolerance. 

“Short-term thinking is at the root of most investing problems.” 

If you can maintain a longer term investment horizon, say five years, you have a material edge over the typical investor who tends to be focused on the near-term.  In our experience, markets reward patience more than any other skill.

“Investing is overwhelmingly a game of psychology.” 

Successful investing typically depends on a combination of research and acumen, your willingness to take the long view, and your ability to resist emotional decisions that tend to result in buying high and selling low.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®