Investing is an act of faith. We entrust our capital to corporate stewards in the faith — at least with the hope —that their efforts will generate high rates of return on our investments. When we invest in a MF, we are expressing our faith that the professional managers of the fund will be vigilant stewards of the assets we entrust to them. We are also recognising the value of diversification by spreading our investments over a large number of stocks and bonds. A diversified portfolio minimises the risk inherent in owning any individual security by shifting that risk to the level of the stock and bond markets...
Might some unforeseeable economic shock trigger another depression so severe that it would destroy our faith in the promise of investing? Perhaps. Excessive confidence in smooth seas can blind us to the risk of storms. History is replete with episodes in which the enthusiasm of investors has driven equity prices to — and even beyond — the point at which they are swept into a whirlwind of speculation, leading to unexpected losses. As long-term investors, however, we cannot afford to let the apocalyptic possibilities frighten us away from the markets. For without risk there is no return. In today’s high-flying, fast-changing, complex world, the story of Chance the gardener contains an inspirational message for long-term investors. The seasons of his garden find a parallel in the cycles of the economy and the financial markets, and we can emulate his faith that their patterns of the past will define their course in the future.
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Partner, BMR Advisors