Patience beats hectic pace

Are you now toying with the idea of reducing your equity exposure? Is everything far too risky anyway and cash is king? Well, that would be a classic mistake in behavioral psychology. Buy expensive, sell cheap and nothing but expenses. Or, to put it in the direct words of Charlie Munger, Warren Buffett’s long-time business partner: “If you can’t take a 50% setback in your investments, then you’ll get the mediocre returns you deserve”.

Investing requires patience rather than haste. Only those who invest for the long term will be able to reap the rewards one day; rash back and forth only costs performance, nerves and fees. But perhaps you would like to give your bank advisor a little treat? In difficult times like today, it is important not to forget the following: Over the past almost 100 years, equities have yielded an average annual return of 7% – but only those who didn’t throw in the towel beforehand were able to enjoy this. And also important: during this time, wars raged, there was inflation, deflation and also pandemics. Crises come regularly – but they also pass.

Of course, waiting and drinking tea is easier said than done when bank economists and other know-it-alls on the left and right are proclaiming that we are on the brink of recession and that the markets could correct further. Now that the stock market indices have fallen 20, 25 or in some cases 30%, the experts are coming out and saying that we should invest cautiously. Why exactly should those who at the beginning of the year predicted neither the surge in inflation nor the fall in share prices now suddenly know how the market will develop? No one can tell you what the markets will do in the coming days, weeks or months. The only function of financial forecasts is to make astrology look serious.

But I can tell you what the stock markets will almost certainly do over the next five to ten years: They will rise! Just looking at how punished European stocks are makes me feel dizzy. One in five shares in the MSCI Europe is trading at an estimated price/earnings ratio of less than 7 – something that didn’t even exist during the euro crisis. At such prices, I’m one of those who buy and certainly not one of those who sell shares. I follow the advice of the wise old man Warren Buffett: “Be fearful when others are greedy and greedy when others are fearful”.

With this in mind, don’t throw in the towel!

Yours, Mark Stock©

Mark Stock is a member of the Point Capital editorial team. “I am a stock market enthusiast and am passionate about economic history. I have been following the ups and downs of the markets for years and, of course, invest myself – preferably in shares. So my name says it all. Every month, I take up what I consider to be an exciting topic. And since the focus is on the content and not on me personally, I write under a pseudonym.”