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[LTCM]

Despite all of the real problems that markets face if investors can steel themselves to ignore the mental confusion and frantic followers of investment fashion then it’s perfectly possible to trade though the irregular panics that occur. Acknowledging that we can’t foresee the future, and realising that nobody else can with any accuracy, no matter what the ‘expert’ label is they run with, is the start of developing an investment philosophy that can stand the test of time.

“The point about viewing stocks as earnings machines is that the cumulative effect of earnings being compounded has hugely beneficial impacts on investors’ long term wealth. Retained earnings should, all things being equal, lead to future company earnings increasing, while distributed earnings – primarily dividends – can be profitably reinvested in other earnings machines. Taken together the overall outcome is nicely satisfactory for investors who can afford financially and psychologically to take a long term view.”

Following some kind of long-term strategy based on fundamental valuations and mixed asset classes will generally reap decent rewards. The trick is to understand the psychological determinants of our investing behaviour: and then learn to override them.

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