28 Mar Successful investing requires faith in the capital markets
As investors in the capital markets, it’s important that we recognise that we’re believers in capitalism! Rather than keeping our money under the mattress, we choose to invest in companies that create goods and services which make our collective lives better. We do this in the belief that over the long term, the return generated by these companies will outpace inflation, even though there’s no guarantee of that happening.
These companies in which we invest engage in economic activities that create jobs that many families depend on for their livelihood. Furthermore, these companies (and the people they employ) pay taxes which fund our ‘free’ healthcare, education and social services. To quote a wise observer ‘these are not unintended consequences of a blind pursuit of money, driven by greed, but the exercise of faith, hope, and trust which allows us to let go of our money to find its most productive home, consistent with our appetite for risk.’
If it wasn’t for the faith of the long-term investor who puts up the capital to further the creativity that’s unleashed through capitalism, it’s hard to imagine the prosperous collective way of life that we lead today.
Accordingly, it’s safe to suggest that a long-term investor is simply demonstrating faith in capitalism. Indeed, it’s impossible to be a successful long-term investor without faith in capitalism. Of course, our faith in capitalism is tested from time to time. That happens when capital markets experience a significant decline, which is often temporary. Sadly, when it matters most, many investors give in to fear.
Fear is the opposite of faith. Faith invests and stays invested under severe market conditions. Fear keeps its money under the mattress and, if it does summon enough courage to invest, it bails at first sight of turmoil in the capital markets. Faith is a long-term investor. Fear is a speculator.
Of course, capitalism has its flaws. As Sir Winston Churchill once observed ‘democracy is the worst form of government, except for all those others that have been tried.’ In the same vein, capitalism is the worst economic system, except for all the others that have been tried.