Over the years we have seen some major shifts in the way funds are invested, investment strategies and the instruments available. You may be forgiven for thinking that because the investment world changes the experience of old style investors can be cast aside. Besides from the fact that trends in all walks of life are cyclical and return at some point in the future, experience of investment markets is earned by grafting and not something which can be bought.
Been there, seen it and bought the T-shirt
If the experience of old style investors was to be cast aside, deemed worthless by investors today, why are the likes of Warren Buffett so rich? He manages to integrate his past experience with the latest markets trends and comes up with transactions which continue to increase his wealth. He also has his followers, many of whom are relatively new to the investment industry and looking for a guru on which to base their future investment strategies.
Learning not to overreact
If you have been there, seen it and done it, it is easier to sit back and watch a situation develop rather than overreact. Those who overreact by selling or buying shares without really thinking things through, letting their heart rule their head, very often live to regret it. That is not to say there is no case for reacting quickly to situations but you need to think through the figures, the consequences and ultimately whether what you are going to do is the correct thing. You can only make an educated guess at any one time but you need to be thinking clear, not panicking and not put yourself at the whim of the markets.
Long-term investment works best
Since the heyday of the 1980s we have seen a massive increase in the number of so-called “day traders” who trade on the margin, trade regularly and can take some fairly large positions. A large number of these traders have created significant wealth for themselves but many have crashed and burned after initial success. The problem is that day traders tend to trade on relatively thin margins therefore it only takes one or two trades to go wrong and their previous profits are wiped out.
Long-term investing tends to even out the crinkles in the market, the volatile share prices and eventually investments are valued on their underlying fundamentals. To take Warren Buffett as an example, he has invested heavily in a relatively small number of stocks on a long-term basis and created some serious wealth for himself and his fellow investors. While there is nothing wrong in taking a profit, if the company still has good prospects in the longer term is there really any need to bail out?
Mixing the old and the new
As in any area of life you cannot buy experience and therefore the experience of old style investors should never be cast aside as worthless. The fundamentals of investing are fairly basic, find a stock with good potential, buy at the right price and take a profit. Trends do change, strategies do change but those who dismiss experience as “yesterday’s commodity” do so at their own risk.