Lighthouse is running a two-week-long series in which we share some of our principles of investment. All you need is an open mind and a few minutes each day. You can keep tabs on the action at the Principles of Investment index.
You know where you are and have some expectations about the coming weather conditions. Should we set sail now, or tomorrow? Or should we wait until after summer has arrived?
While Part 2 could be deemed as a massive over-simplification of what is an extremely complex issue, it does at least fulfill one very important function; that of getting ourselves (as investors) to put aside emotional drivers and the multitude of opinions forced upon us – particularly those of the media. Now we can start asking ourselves the right questions – and the simpler the better. Such simple questions (and the resulting simple answers) can and should represent the starting point for investment thinking and discerning an appropriate strategy.
So, how does defining an outlook perspective help us as investors in deciding whether to be in or out of the market? If we accept those simplistic answers as being reasonable in the face of where things are ‘now’, and where we reasonably can expect things to be at a certain point in the future, it gives us a ‘direction’ that we can at least visualize and anticipate, and so make it easier to decide when to set sail. In fact, with a decent ‘meteorological report’ (our unemotional perspective), we might see that the storm we can see right now will take us far more quickly and more profitably to our destination than if we wait the few months (or years) for summer to arrive first.
Do past events support such thinking? Yes, 1997, 1987 and 1974 were clearly similar ‘events’. Yes, each was different in unique ways, but they each followed similar patterns. Each occurred after a lengthy and substantial bull-run; each suffered a massive and swift loss of confidence in the market-place; each took several years to recover; and each one did in time recover. The common thread here is that the economy and market-place is cyclical. In fact, there is no reason to believe that this present ‘down-turn’ is really much different to those that have gone before, or will come again. Once we accept this evident cyclical nature as being a normal and natural process, emotional factors and drivers are consequently much less influential on our thinking, perspective, direction, and actions.
Tomorrow, we’ll look at “Part 4 – How to get there… by sail or by engine?”. If you liked this article and wish to see “How” we deliver this for our clients, do give us a buzz, we can arrange a personal introductory discussion with one of our consultant; after-all, this is the point of this blog, helping you 
