Investment Success can be thought of as the reward that awaits you within a vault that must be opened using four key codes. To open the lock to the vault you must turn to each of the four key codes in order. Only then will the wheels of the lock align allowing the vault to be opened. Then investment success will be yours! In today's blog post, I will introduce the first key: Faith.
Key #1 - Faith in the Future
The first key needed to obtain investment success is to have a resounding "faith in the future". This is faith in the growth and progress of economies, businesses, and people (who work and own these businesses). When you invest, you are buying a piece of a business. Therefore, you would only invest in that business if you felt that the business would make money in a conducive environment. Taken further, as globally diversified mutual fund investors, you are buying ownership in businesses around the globe, and therefore, you have a stake in the entire world economy - the economies in which these businesses operate. You would only own these investments if you felt these economies would grow over the long-term. This is faith in progress, not perfection. People, businesses, and politicians are not perfect, but if you take a step back to look at the upward curve of progress it is easy to have faith. If you can't see this progress, and are fundamentally afraid of the future (and have lost faith), it is impossible to invest successfully.
Yes, there have been, and will continue to be, great difficulties. There is always a real and painful crisis going on somewhere in our world. It will be scary at times and it is normal to be afraid, but if you don't believe that "this too shall pass," you have lost faith and will have great trouble investing.
One way to stop fear from turning into a loss of faith is by turning off the financial news, and instead reviewing history and seeing the realism of optimism. Want some proof? Google Hans Rosling's talk titled 200 Years in 4 Minutes.
No one can plan for the future without believing in that future. I believe that one of the keys to successful investing is to win the battle that takes place (in our mind) between our faith in the future, and our fear of the future. While we must live in a volatile world, we must act “AS IF” the future will be better. There will continue to be surprises and crises of horrific nature and when they occur, we certainly won't know exactly HOW things will turn out alright, but we must know THAT things are going to turn out alright. What is the alternative - to live in our self-made bomb shelter? To gamble against capitalism? This does not mean living in denial, or just acting like starry-eyed dreamers. We should have faith in the future, because the facts support that faith, not because we have blind faith. Things will not always be rosy, and are still downright painful for many people, but progress and improvement will continue through both the good times and the bad. This progress is what we are investing in, and the world is benefiting.
This is one belief that we and our clients must accept on faith - capitalism and business growth will lead to wealth creation, not only for ourselves, but for the world. If you don't have this faith, then the stock market becomes a speculative and scary venture.
It is my faith that tells me to love panic prices - because I believe things will turn out OK in the long-run. Faith in the future will always turn out to be the main engine of a portfolio's performance. Think of those that you know who in a mindless panic, sold their shareholdings at prices which will never be seen again. Who did they sell their shares to? Those of us with faith in the future!
Faith in the future is the first of the four keys to investment success. This is because it would not be possible to move on to the next key if you are constantly worrying about the future. This next key will be covered in my next post.