Make no sudden moves

As investors we see only the latest news and make that our reality. We also tend to react emotionally to the current news and sometimes even act on these emotions, resulting in good or bad outcomes that cannot be attributed to prudent research but rather to merely good or bad luck.

Currently, gold-mining companies are enjoying a fantastic run while some companies operating in other environments are doing less well. If we take Goldfields and PSG as examples we will see that Goldfields is up 87% year to date, and PSG is down 20%. If we look only at these returns and ignore the fundamentals behind them, we want to pile into Goldfields shares and sell all our PSG shares. But, if you are a longer-term investor, you may want to know that if you had invested in Goldfields nine years ago, you would now still be down 10% and if you had invested in PSG nine years ago, you would still be up 582%.

This does not, however, tell us that we should not buy Goldfields and sell PSG, as there might be a structural change in gold-mining companies that will make them the perfect investment to hold for the next ten years, and PSG the worst. All it does is to emphasize the fact that the short-term price movement is exactly that – a short-term price movement caused by recent decisions made by buyers and sellers in an open market.

So, what we have to do in all our investment decisions, is to evaluate the changing environment over a period of time on an ongoing basis and make gradual changes where needed. An example would be the decision to sell our horses and start investing in anything to do with motor cars at the end of the 19th century when German inventor Karl Benz patented his Benz Patent-Motorwagen; or selling our shares in typewriters and fax machines some twenty years ago and investing in anything IT.

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