Warren Buffet remarked, “Investing is simple, but it is not easy”. Why is that? In my opinion, the biggest reason is that we are emotional beings. We act on impulse and base responses such as fight or flight. When you are standing in the forest and a bear locks eyes with you, do you stand perfectly still or turn and run, even though you know it is futile? Most people will turn and run and be mowed down due to their emotional response.
What would you do if you make an investment and within two months, it falls by 20% and you phone me, naturally very upset and I tell you to buy more? I’ll never forget Oom Piet. In 2006, he wanted to buy a new Toyota Corolla, but didn’t like the new shape and had some extra cash. He didn’t really need it and looked for a long-term investment. I advised him to invest in a good property fund. Two months later his R200 000.00 was only worth R165 000.00. He phoned me in a panic shouting, “Sell, sell! The markets are bleeding!” I calmly asked him if he had more money squirrelled away, because we can now buy the same asset that we thought was good a couple of months ago, for 20% less. What a bargain! I couldn’t convince him to invest more, luckily, I convinced him that I’m not crazy and not to sell.
10 Years later (and a few similar crashes in-between), the investment grew to R900 000.00. If he ran away from the bear, he would have cashed out, locked in his losses and put his money in his flexi savings account or some other ‘safe’ investment. He would have had R300 000.00 if he acted on his emotions instead of keeping to his simple investment philosophy. How many of us salivated looking at the meteoric rise of Bitcoin and thought of buying some?
There is a new scam every couple of months, and I’m always amazed and jealous that they attract so much more investments than I did in the same period by making insane promises. Good investing is simple, it is boring, it can be scary, but if you keep your emotions in check and stick to your guns you will be rewarded.
|Written by Fanie Nel|
|Financial Advisor l B.Comm, CFP®|
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)