In a turbulent market, such as this one, where Donald Trump won the US Elections, Brexit and its repercussions are still looming and political turmoil happening on our doorstep; you may ask is this the time to be investing?
When most people think of an Investment Guru, names such as Warren Buffet and Sir John Templeton are the first to come to mind. They are excellent examples of entrepreneurs who started their success through investments and more importantly they started when markets were down.
At 11 years old Warren Buffet made his first investment, buying three shares of Cities Service Preferred at $38 per share. The stock quickly dropped to only $27, but Buffett held on tenaciously until they reached $40. He sold his shares at a small profit but regretted the decision when Cities Service shot up to nearly $200 a share.
He later cited this experience as an early lesson in patience in investing.
A further lesson can be learnt from, Sir John Templeton, who in 1939 invested $10 400 in several small companies, while Hitler was ravaging Europe. By applying sound investment principals and not panicking in times of uncertainty he sold those shares for more than $40 000 four years later!
In turbulent markets where some fear to invest, an opportunity may lie.
Buying when markets are low
Traditionally investors are positive when markets are performing well and start investing aggressively, failing to understand that they are buying shares at a higher price.
The opportunity lies in buying when investor confidence is low, if you do the necessary research you will be able to identify the profitable shares where you can buy future wealth at a lower price!
Don’t panic when markets fluctuate
Another mistake investors make is panicking when markets are down; if you sell stocks at a lower price you are locking in your loss – losing your money. If you do the necessary research and invest accordingly, it may be prudent to leave the investment unchanged knowing that markets will recover.
Investing for longer reduces risk
When you invest for the long term, you can afford to ride out short-term volatility and not panic.
If you had to take any 40-year period on the JSE, the result in terms of performance has always been above 3% above inflation. In other words, your money will have grown at 9.2% per annum, even with the volatility of markets going up and down.
The saying of time in the market is better than timing the market, is very much applicable here, but you would need to be in the market in the first place.