Sometimes, and I mean only sometimes, I look back at things I have written and they actually make sense. So today I will indulge myself and review some of the comments I have made in editorials I have written for the shareswatch blog. For in uncertain times, it is often useful to spend a moment or two reflecting on the past.
Back in October 2006 (Where is the market going?) I wrote:
“we should all prepare mentally and financially for the dips in the market and be prepared to ride out the bad times. By mentally I mean we should try and avoid panic selling and be very selective if we sell and even more importantly, be open to the buying opportunities that a market downturn presents.
By financially I mean we should not be depending on good market returns every year and expect over the long term some, years of negative capital gains and reduced income from dividends. The good news however is that if we keep our heads and invest in good quality companies/stocks, then there is a high probability that 10 or 20 years we will have made a tidy profit. “
When I wrote this we were still enjoying a bull market and the the stock market appeared to be heading ever upwards. However even back then, I was preparing for times when things would not be so good, so I sold some stocks and beefed my holdings in income stocks. (some of which have been hit hard by the recent market debacles)
It is not because I am smart I did this, in fact it is because I am not so smart and therefore I knew I could not pick the top of the market and decided to take some profits while times were good. Now that times are not so good, I am looking for buying opportunities in the hope that in years to come I will be rewarded.
In August 2007 soon after I arrived in Japan I suggested the following:
“The key thing to remember if you are stock market investor is you need to treat it like a business. I believe you should keep en eye on your cash flow position and not leave yourself exposed to nasty margin calls or be forced to sell at a loss.
Sure, you will pick some bad stocks and I have had my fair share, but perfection is a hard thing to achieve. Warren Buffet may be a legend, but there are smarter people out there who have followed very sound investment strategies and fallen on hard times.
In every thing we do, we do not have total control and sometimes well, things just happen. Unexpected events move the stock markets quite often and if you find this keeps you up a night, then maybe a term deposit might be the way to go.”
I wonder if some of the recently burnt major investors and business leaders really thought about cash flow in terms of their own investment situation? Did they ever think about how they would handle a margin call for example or did they believe that they were masters of the universe?
Success is a dangerous thing, it can cloud your judgement and you can start to think the way the market works does not apply to you..or think you are smarter than the market. But one day if you are not careful, the market will give you a nasty reality check.