Historically, October has been a bad month for equity investments, but not so this year. We have seen a healthy bounce in share prices (see graph) and we can only hope for more. It is always interesting to take a look at history and sometimes it can give us a clearer perspective. The graph below highlights some key events over the past 35 years and the impact these have had on world equity markets. It is clear that the overall trend has always been upwards but boy oh boy! Sometimes we have had to deal with a lot of angst and have needed to dig deep to not lose hope.
With hindsight it is always so easy to judge, but when you are actually in the situation, making the right call is not easy at all. If we look at trading in Apple shares by two of the best investors in the world, we see how different people react to the same set of circumstances. Carl Icahn, a billionaire activist investor, bought $3.6 billions’ worth of Apple shares in 2013 and sold them for a whopping $2 billion profit in 2016. His rationale for the sale was that China was becoming too risky as an investment destination and Apple generated a lot of income from China. If Carl had not sold his Apple investment, it would be worth $36 billion today, a 1000% return. At the time of Icahn’s sale, Warren Buffett started buying Apple shares and he has reaped the benefit of the huge surge in the share price (see graph).
Both of these investors made a lot of money, using vastly different strategies. Carl focused on the shorter-term potential and by analyzing information available at the time, believed that the longer-term risk was too great. Warren, on the other hand, used the same available information but believed that the potential outweighed the risk over the longer term. And the latter has turned out to have been the right decision.