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Fear, hope and greed
Whenever the markets are in a state of negative volatility people come out with their favourite Warren Buffett quotes.

Choosing a favourite quote

Choosing a favourite is not easy, as there seems to be one for every occasion. I don’t have a favourite, but here are some that spring to mind.

“The business schools reward difficult complex behaviour more than simple behaviour, but simple behaviour is more effective”, This is very apt in the light of reports that the Absolute Return funds had again not produced positive returns during the current market adjustment. Questions are being asked whether some of these funds are now too large to be effective to carry out their hedge strategies effectively.

Another one that would fit in well today was ‘’No matter how great the talent or efforts, some things just take time. You can’t produce a baby in 1 month by getting 9 women pregnant.’’ Investing is not a short term process and you should be prepared to go full term to gain the best results. However, investors tend to sell good investments when they fall back in value whist keeping those that have crashed in the hope that they will recover. Mr Buffett’s quote “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” explains that it is sometimes better to accept the loss and move on.

Famous quotes

Now, I don’t know if we are quite ready for one of his most famous quotes ‘’Be fearful when others are greedy and greedy when others are fearful’’ as it is very difficult to predict the bottom of a cycle. One surety, looking at the emotions of investing chart is that we are a long way from the euphoria end of the cycle.

 

break up your capital into smaller pieces

This does not mean that we should be heading to an ‘all in’ strategy. Regardless where we are in the cycle it would wise to break up your capital into smaller pieces and slowly introduce your money into the equity markets over a longer period of time.

By investing some money now, should the market recover you know you have invested some money cheaply; however should it fall further you will have some more available to invest at an even lower point. In that way you may benefit from an average cost of investment between the hope and optimism points in the cycle.
The worse thing to do would be to wait until everything is looking rosy in the garden and we have reached the thrill point. Waiting too long before investing is one of the reasons why many people fear equity investments. It is also the foundation for investors to unwittingly carry out a buy high and sell low strategy.  Overtime, this affects people’s confidence to own equity based investments in pensions and ISAs, which is needed to build a financially secure future.

By slowly bringing your money to the market over time you should end up with a lower average purchase price. This will give you a greater chance to achieve a simple Buy Low and Sell High strategy.

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