The old adage, “There is nothing new under the sun” is never truer than on Wall Street. There have been and always will be showmen, investing gimmicks, latest fads and new paradigms of investing. But in the end, it’s the same as it was 100 years ago. In our opinion, there is no more powerful forces in investing than human nature and emotions. And those never change.
These days, Hedge Funds are all the rage. Many of these funds seem to primarily benefit great salesmen and portfolio managers charging excessive fees for underwhelming performance. However, this is nothing new and we will see it again someday. In the late 90’s, stocks selling for 100 times their earnings were promoted by Wall Street’s largest and most prestigious firms as “Best Ideas” or “Strong Buys”. So too, were companies with business models designed to never turn a profit in any foreseeable future touted as dot.com darlings. And yet, investors still remain committed to these Wall Street paragon’s for advice.
Here are a few simple things we do know:
- Money will always migrate toward the investments holding the most potential upside with the least amount of risk.
- In the long run, the stock market is usually right.
- Typically, the stock market is an excellent indication of economic activity 6 to 12 months down the road.
- Government entanglement into private sector companies makes the investment less predictable.
- Invest in what you know and you will probably do just fine.
- Rarely will chasing the hottest stocks pay off in the long run.
- When a stock disappoints Wall Street, falling significantly on bad news, it typically takes 12 to 18 months before investors to come back to the name.
- There is no such thing as a hot tip.
- The stock you hate in your portfolio will not go back up until you sell it.
- When somebody tells you, “all the bad news is out on a stock”, there will be more to come.
- The latest investment guru or genius getting all the media attention will likely underperform their peers.
- If the investment doesn’t make sense to you, don’t invest.