Five investment lessons from the last 20 years
Markets change, but the mistakes investors make tend to repeat. A look back over two decades of cycles points to what’s actually worth remembering.
Periods of market stress tend to produce the same advice: focus on proven investment principles rather than being swept up in whatever is exciting the crowd at the time. Looking back over two decades of cycles, a few lessons hold up consistently.
1. Face up to your emotions
Instinct often pulls investors in the opposite direction from what actually works. A clearly articulated plan, decided on in advance, does more to moderate an emotional response than willpower does in the moment.
2. Be cautious when something new arrives
New technologies and ideas that generate genuine excitement are sometimes real, and sometimes hype — and it is rarely obvious which, in real time, to anyone, including experienced investors.
3. Fundamentals still matter
A company can be growing quickly and still be a poor investment if it is not, or cannot become, profitable. The reverse is also true: an unfashionable, average company bought at a depressed valuation can be an excellent investment if it improves even modestly.
4. Don’t rely on forecasts
Forecasting is unreliable given the sheer number of variables involved, and no one has managed to do it with any consistency. Trying to time an exit from the market based on a predicted downturn, then timing a re-entry, requires getting two unreliable forecasts right instead of one.
5. The biggest outperformance tends to come from unpopular places
This article is general information and not advice. Silke Financial Services is an Authorised Financial Services Provider, FSP No. 12462.