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Are you fearful or greedy?

What should investors do right now? Strangely, the answer for an investor should not change all that much, if you don’t want to make too many mistakes in building your wealth.

Stand your ground

Investing, I’ve found, should rest on a nice pile of clichés and maxims that have stood the test of time and I thought with the stock market so volatile, it’s the right time to opt for the levelheaded approach.

On the rollercoaster

The alternative to this more automatic pilot approach is to become a trader, a player, a gambler. You will react to tips, do your own form, you’ll win and you’ll lose. And the calibre of your inside information and your analysis will determine your long-run result. 

The poet’s advice!

There are a lot of ‘ifs’ and ‘buts’ in this approach.

To sum up my advice, let me borrow the words of the poet Rudyard Kipling: “If you can keep your head when all about you are losing theirs …” These wonderful words came back to me when I read Warren Buffet’s observation about himself, which is a fantastic starting point for anyone who wants to call themself an investor. 

The Warren Buffet stanza

A summary of what he said was: “When everyone is greedy I am fearful, but when everyone is fearful I get greedy.” 

Shopper’s delight

An enormous number of experts I respect, who aren’t talk up merchants, continually remind us that there is great value in the market right now. However being a buyer could take courage. 

Are you afraid?

Time for another inspirational word or two. The Franklin D Roosevelt classic is apt: “The only thing to fear is fear itself.” Of course it would be silly to argue that you have to invest without fear, but I’d argue that if you put a great plan for investing together, you can nearly take fear out of the equation. 

One person’s strategy

I know someone who has adopted an automatic strategy. Every quarter after he pays his Business Activity Statement, he puts $10,000 into compulsory super for himself and his family members, who work in the business.

The family’s self-managed super fund has regular input of $10,000 and it consistently buys top 20 stocks. Sometimes they hold cash just to give their portfolio less exposure to shares, but they’re in a growth phase and they want to play fast and loose with a reliable collection of shares. 

Long run winner

During the past few months (years, even), their resolve might have been challenged, but they have stuck to their plan.  

Time for a plan

If you have not been a shareholder before, it would be wise to create a plan to start collecting great companies.

The basics can be summed up this way: “Hold great companies for a long time and don’t lose your head on speculative tips and scary headlines.”

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, August 19, 2011

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