Howdy folks!
As you know, I generally try to make these as timely as possible. But this week, I thought it would be good to review a timeless concept.
The most important rule of investing is that it requires a long-term mindset.
If you have a short-term mindset, it’s not investing. It’s trading. And nobody – not even the most skilled investment managers – can consistently predict how things will play out. The economic and capital market landscapes are way too vast and evolve way too often.
This is especially true in the short-term. Everyone has a prediction on how our current bout of inflation will play out, but nobody really knows. Everyone has a forecast on where the stock market will be in 6 months or 12 months, but nobody really knows.
But when you extend those forecasts out longer, you start to get more clarity. And that helps us invest based on the most probable outcomes. For example, since the government began tracking it, the long-term average inflation rate in the US is 3.1%. And since its inception in 1957, the S&P 500 has been positive in over 70% of calendar years.
It’s intuitive that the stock market delivers predictably good returns, despite the fear mongering you hear in the media. Throughout history, mankind has created solutions that not only help us adapt to change, but also create ways to profit from it. Therefore, the economy has always moved onward and upward over time, despite the occasional recession. The stock market is simply a reflection of this. So it has always gone up over time, despite the occasional bear market.
This is why the majority of my investment strategy is a simple stock market index fund. Because I could be wildly wrong about every one of my forecasts and still end up with great long-term investment returns. (On a side note, that brings us to another key rule of investing: always know that you could be wrong.)
I view my stock market index fund as a very safe investment. Individual companies can go out of business, meaning their stock price could go to zero. But the global stock market isn’t going out of business any time soon. And if it does, we have much bigger problems than money.
This clarity allows me to take higher risks in a smaller portion of my portfolio, in an attempt to enhance my long-term returns. This is where I invest in long-term structural trends. These are emerging industries that have the potential to deliver significant returns over time.
From Clean Energy to Fintech, Cannabis to Artificial Intelligence, Crypto to NFTs…it doesn’t really matter. The predictable growth of your portfolio’s foundation allows you to take risks wherever your convictions lie. And the confidence to stay disciplined when we inevitably go through rough patches.
Of course, it’s important to have a good strategy in place, as well as a process to account for and manage short-term risks. If you’re interested in learning how I do this — and which emerging industries I am investing in — you can view my full investment process here.
With that, I’ll click send and wish you an awesome rest of your weekend!
I hope you found this timeless concept to be useful. As always, please reply back with any thoughts or questions. I’m always open to feedback.