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Psychology of Investing

Posted by Naomi Rosenthal on Thursday, March 17, 2011 Under: Financial Planning

 (Click on picture to enlarge)
At the annual conference I attended recently in Hobart, I had the pleasure of seeing
Peter Thornhill deliver a no-nonsense, emphatic and impassioned talk on his favourite topic – the boring world of the sharemarket. He says, “I prefer the safety and security of the sharemarket to risky assets like term deposits.” What the…?

He believes the share markets are guided by forces beyond reason. Their ups and downs can be linked to collective human behaviour, not a logical continuum of cause and effect. He believes that there is no such thing as a market "crash"; why investing for the long term is the surest way to tap the market's riches; why market volatility is not a measure of risk; and why looking backwards "can damage your wealth."

He explained the difference between investing and speculating and that most “investors” in the sharemarket are actually speculators. He told us that if he were Prime Minister, he would create a world where your family home prices (arbitrarily valued by Peter himself) would scroll across our TV screens every minute of the day and that once a year he’d open up the stock market for all of us to spend the day trading, if we wanted to be that silly.

His point? That if you’re a true investor, then you will be sticking to your investment strategy and all the hype of day to day will not disturb your longer term vision and you will reach your investment goals.

Oh, I haven’t mentioned Japan[1]

The region most badly affected represents some 4% of Japan's GDP, roughly equal to the Kobe area which was hit with a devastating earthquake in 1995. At that time the net negative economic impact was 0.1% of GDP.

Reconstruction is likely to take much longer than Kobe due to the widespread area destroyed and significant infrastructure. In addition many of the roads, tunnels, bridges, telecoms and power generation facilities were engineering feats to create due to the difficult topography.

Throughout its history Japan has had to face the aftermath of earthquakes, tsunamis, floods, landslides and fires. It has a uniquely stoic and disciplined people who have been imbued with a history of national tragedies. The sense of unity and of country is very strong. Public, social responsibility is well developed. There has been no looting. A sense of common purpose has prevailed in that a national calamity has been suffered and that it is the country's responsibility to work to repair the damage. While the government is already heavily indebted, the private sector is wealthy. Japanese households own most of the government's debt, rather than foreigners. Japan is an old, but wealthy country. It still has the world's second largest foreign exchange reserves.

If you have concerns or would like to review your portfolio, [click here] to contact us or call us on 02 9417 6011.

[1] Lazard Asset Management

In : Financial Planning 

Tags: investing psychology "peter thornhill" sharemarket behaviour japan earthquake tsunami portfolio "investment strategy" wealth "wealth creation" 

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