Keeping the faith

Reading the latest financial media this morning the headline article read like this: “Due to the share market surge Australian share fund managers deliver their best returns for nearly two decades”. It’s not hard to see why they have reported things the way ‘they’ (the media) see them.

I am also not surprised to hear that hedge funds were some of the worst performers (but that’s another story).

If you were reading that headline as confirmation you are now safe to re-enter the share market, sorry you’re (virtually, almost) too late, (I will demonstrate this in future). The best returns are already gone and your all important ‘margin of safety’ is now seriously diminished.

America’s most successful long-term fund manager Peter Lynch headed the investment team at Fidelity Magellan, with returns averaged at 29.2% over 13 years of his helm, Lynch estimated that the majority of people who invested in his fund actually ‘lost’ money. Pulling their money out when spooked by media scaremongering during a ‘correction phase’ such as in the ’87 crash, or such as the 2008/09 decline (our recent) and getting back in after the reporting of good results as above.

We’ve already heard the media reporting about the greatest investor’s worst form for returns for last year (Warren Buffett predicted this himself). I suspect that before long we will be hearing about his ‘greatest comeback in history.’ Stay tuned!

I’ve gotta keep the faith

Lynch called people who took such notice of media scaremongering as ‘weekend worriers’. Lynch talked about the Dr Feelgood method of investing, when we feel good about a 600 point gain after a sharemarket rise and queasy about a 600 point decline (although we are talking much larger ups and downs nowadays due to price escaping from value).

Lynch talked about keeping the faith. Faith about the bigger picture stuff that people will spend money, that countries and markets will keep trading and that the metrosexuals out there will keep buying their hair products.

Without faith you will fall into the trap of believing in the constant bombardment of negative press headlines. Without faith, you’ll sell when you fear the worst which is undoubtedly when prices are at their lowest and it’s really the ‘best’ time to be buying.

The even bigger picture

Ignore the media whenever you’re confronted with short-term doubts about rising unemployment and more people working for K-Rudd, or all the thousand reasons the world will end. Remember the even bigger picture, over the last 80 years or so the sharemarket has returned better than 12% (including dividends) while cash, treasury bills and bonds less than half that or with little change left over after inflation.

Even if you take this one piece of advice away with you, as an investor you’ll be far more successful than the other half of the investment community… even more than some so called professional fund managers.

Nick Christian is a Financial Adviser and planner and authorised representative of Millennium3 Financial Services.

The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.