Finance 1. Warren Buffett: defence wins the investment game “Rule #1: don’t lose money. Rule #2: don’t forget rule #1.” Perhaps the simplest and easiest-to-understand of all financial wisdom, fromWarren Buffett, chairman of the Berkshire Hathaway Corporation and one of the most successful investors of all time. Buffet’s point is a pithy reminder that for most snowbirds, most of the time, playing defence − sticking to conservative, top-quality investments which protect our capital and limit our downside risk − is a far wiser investment strategy than taking on big risks in an effort to become fabulously rich. This is particularly important wisdom to keep in mind today, as an already long-in-the-tooth bull market continues to rack up all-time highs. If you’ve been an investor in stocks over the past few years, you’ve probably seen some tremendous gains, particularly if you’ve been an investor inmore aggressive, growth-oriented sectors such as technology. That’s great but, going forward, it probably makes sense to remember Mr. Buffett’s wisdom and realign your portfolio to a more defensive posture. Instead of assuming that the good times will last forever, shift your focus to capital preservation: choose easy-tounderstand investments that operate in well-established industries selling products and services that are likely to be in demand for many years. If you remember nothing else from this article save that one lesson, you’ve already done a lot to protect your portfolio, no matter what the market does. 2. Peter Lynch: always do your homework “If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” Sometimes it seems as if the stock market is a giant roulette wheel. Or a big lottery ticket. But the truth is, there’s a business lying behind every stock ticker which you see flashing by on the nightly news. The above wisdom from Peter Lynch, famous former manager of the giant Fidelity Magellan Fund (which averaged a 29.3% return over the 13 or so years for which he ran the fund), reminds us that every investment should only be made after taking the time to do our research, analysis and an honest evaluation of the future prospects of the business that lies behind the stock. Failure to do this fundamental homework means that we’re making investment decisions based on blind guesswork or gambling-like speculation. Again, this is particularly important wisdom to keep in mind right now, as so-called “meme stocks” and super-hyped industries (Electric cars! Artificial intelligence! Big data!The “metaverse”!) generate more than their fair share of both headlines and returns. Sure, some of these investments may end up making investors rich. But many more will end up being nothing more than hot air. And you’ll never know the difference unless you do what Peter Lynch advises you to do: roll up your sleeves, take a hard look at the underlying business and come to an independent assessment of its future prospects (or lack thereof). 3. Sir John Templeton: study history to understand downturns “The four most dangerous words in investing are: ‘This time it’s different.’” Sir John was the founder and chief investment officer of one of the world’s largest and most respected mutual fund families. His Templeton Growth Fund, which he managed from 1954 to 1992, was one of the first true “globe-trotting” funds that searched for investment opportunities in all corners of the financial world. Over that time, Sir John’s success was derived in no small part from his keen sense of perspective: that the stock market moves in cycles, with booms and busts coming and going today, much as they have done before through history. In today’s age of “clickbait”-style financial headlines and emotionally charged investment shows, Sir John’s simple wisdom stands apart. Throughout history, there have beenmany market downturns, crashes and disasters. And, over the course of our investment careers, we will almost certainly see many more. No matter how dire events seem right now, no matter how “novel” the economic problems that are currently facing us, no matter how distressing the political or market news may be, it’s good to keep Sir John’s advice in mind: investors have faced similar problems before. And, by appreciating how past investors have survived (and thrived) during difficult times, we can understand how we can keep cool in the face of market turmoil. CSANews | WINTER 2021 | 27
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