Originally written and published by myself in 2009 - But it's as relevant today as it was then.
We all know that the global investment environment has been extremely difficult for some time now.
Politicians and investment commentators have talked of falling GDP and flat markets. The truth is that rarely has there been a better time for the long-term investor, and it is important to remember that some investing concepts never change...
'Buy Low and Sell High' is the simplest, so hold the assets you have, and buy more!
Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that "The time to buy is when there's blood in the streets."
He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own."
This is contrarian investing at its heart - the strongly-held belief that the worse things seem in the market, the better the opportunities are for profit.
So hold the assets you have, and buy more!
This does make a lot of sense, but when will we start to see real growth?
This really seems to depend on who you listen to, but what we can be sure of is this- the longer global markets remain negative and disappointing, the more rapid will be the growth, so holding onto existing assets, and buying more of them is the way to go.
The chart below 'Long-Term real growth in US GDP' shows that regardless of the global situation, there is always a return to growth. Even following the great depression of 1929, GDP growth started to return in 1934, only 5 years after the initial drop. Two world wars, the 1970's Arab oil embargo, the Vietnam war- none of this impacted on the trend, though each of these eras left blood, real or notional, on the streets. On every occasion, growth returned.
So hold the assets you have, and buy more!
Some idea of when the growth will start would be useful, so the news media listens to every politician's words, and the financial papers offer opinion.
The truth is that politicians, regardless of political colour, are generally superb wordsmiths who can talk a convincing story but say nothing.
Alan Greenspan is a man who knows about money, and has proved to be an astute public figure. He has made it very clear how important it is to listen to the experts!
'I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said.' - Alan Greenspan.
Long-term investors need to be patient when asset values are down, but be prepared to take advantage of the opportunity. Rothschild's opportunity came with the battle of Waterloo on 18th June 1815, but we have a great opportunity to benefit from the current global situation.
You could say that Rothschild's good fortune of almost two centuries ago hardly applies to a modern world, so here are recent quotes.
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” – Sir John Templeton.
John Templeton was the founder of Templeton Growth Ltd, (Templeton Funds) and Money magazine in 1999 called him "arguably the greatest global stock picker of the century”
"In investing, what is comfortable is rarely profitable. At times, you will have to step out of your comfort zone to realize significant gains." - Robert Arnott
Robert Arnott has served as a Visiting Professor of Finance at the UCLA Anderson School of Management, on the editorial board of the Journal of Portfolio Management, the product advisory board of the Chicago Mercantile Exchange, and the Chicago Board Options Exchange. He previously served as global equity strategist at Salomon (now Salomon Smith Barney).
It’s never easy to watch values dropping as we’ve seen of late but it's one of those ‘sit tight and ride it out’ situations, assuming that you have some time on your hands.
Hold the assets you have and buy more if possible.
Volatility is a fact of today’s investment arena and if utilised correctly can add greater profits over time.
If you would like a no obligation review of your strategy, please contact me.