Bubble watch #13 – get ready
In recent months, the number of very successful investors doing ‘it’ themselves has surged.
So here’s a question:
Do you think the number of very successful investors will continue to surge when the market falls?
Of course not. Fair-weather success is easily and frequently mistaken for genius, and just as those who have borrowed 80 per cent to purchase a property yielding nothing after maintenance and interest feel vindicated by rising property prices, so too do share market investors believe their need for guidance is reduced when everything is going up.
It was John F. Kennedy who, in 1963, famously borrowed the phrase; “A rising tide lifts all boats”, and Warren Buffett who subsequently observed that; “Only when the tide goes out will we see who was swimming naked”. These observations are no less true today than when they were made. As markets rise and interest rates remain low, those quotes should stand as reminders that confidence in our own abilities might be misplaced.
There are a number of ways to test whether confidence is justified. Of course, the most expensive way is to wait until the next inevitable correction but very few baby boomers can afford to get the next correction wrong. Preserving your wealth through the next correction will make the difference between a comfortable retirement and something quite different. And if you believe owning Telstra for its yield will keep you safe, be warned.
Another safer and far cheaper method of testing your confidence is to digest the techniques and tools of others, shining a light on our own in the process.
For those who didn’t get around to picking up a copy of Value.able, I’m taking the liberty of recommending it to you now. If you already have a copy, now is the time to read it again.
The gap between price and value is widening in the wrong direction, and the chasm over which the bridge spans is deepening. The current share prices mean many large companies now have to sustainably generate unusually high rates of return on equity to justify very modest returns for shareholders. And those returns don’t seem to justify the risk. They certainly won’t when interest rates rise.
With apologies in advance for the apparent narcissism, on October 5 2010, Adam Schwab reviewed Value.able on Crikey:
“Unlike virtually every share market expert, not only does Montgomery get it right most of the time, but he also has the rare ability to simplify the fundamental principles of investing to the most unsophisticated of investors.”
“There are few more topics as poorly explained (and as a result, misunderstood) as investing. That fact is somewhat ironic given there have been more books written about investing than almost any other subject. But unlike books filled with technical charts or complex formulae, Value.able manages to simplify investing to a few basic principles and explain to readers how buying shares in a company is really like buying a business. Montgomery is careful to distinguish between speculating (which is what most mum and dad investors unfortunately end up doing) and real investing.”
Purchase your copy of Value.able today HERE