Value Library

The following is an excerpt from the ABC Perspective - October 2006 - Pg. 16

It is my view that each stock market and economic cycle is different from the ones which preceded it. No matter the sense of déjà vu which might occur to the observer there are always distinct differences which set apart one cycle from the next. In fact, if each cycle repeated itself exactly as in the past we wouldn’t need investment analysts or economists…just historians.

The stock market, in my view, is a complex institution. It is a madhouse of conflicting economic and investment opinions all revolving around the objective of making money. In short, it is a cornucopia of divergent investment views culminating in a spirited tug of war between the forces of fear and greed. Each investment situation is different and one must expect that nothing goes according to plan. One cannot program investing like setting an alarm clock or brushing one’s teeth. The intense psychological emotions in the heat of a lively and volatile trading environment necessitate a rock-solid philosophy and nerves of steel. The volatility of the market place with its innumerable peaks and valleys infatuates and, at the same time, enervates many investors’ resolve. For instance, over the years I have observed perfectly rational, well-educated and emotionally stable individuals make ill-advised, illogical and foolhardy investment decisions. These decisions were largely driven by the omnipresent twin factors of fear and greed.

In summation, investment success is a function of many inter-related factors. The key to success, I continue to believe, includes serious fundamental analysis, discipline, focus, stamina, patience and courage of one’s convictions. Admittedly, these attributes are easy to list, and yet, difficult to follow. Nonetheless, they are all-important ingredients to investment success. However, in closing, I would add another significant factor: expect the unexpected. It is my view that investor flexibility, thinking outside the box and willingness to accept change are factors which are just as important to the ultimate goal of investment success.

Irwin A. Michael, CFA