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The following words were written by Edwin LeFevre in 1923 when he penned the oft-quoted Reminiscences of a Stock Operator. They are as true today as they were then: “The sucker has always tried to get something for nothing, and the appeal in all booms is always, frankly, to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity. People who look for easy money invariably pay for the privilege of proving conclusively that it cannot be found on this sordid earth.” He continued: “Speculators buy the trend; investors are in for the long haul; ‘they are a different breed of cats.’ One reason that people lose money today is that they have lost sight of this distinction; they profess to have the long term in mind and yet cannot resist following where the hot money has led.” Recently, I wrote that it is best not to make forecasts of stock market direction because they are largely unpredictable and random movements in the short-to-intermediate term can affect the investment outcome. But I warned, it is wise to expect that we will occasionally experience periods where markets are less than hospitable. As Benjamin Graham, the godfather of security analysis, wrote in his seminal book, The Intelligent Investor in 1949; “those who do not remember the past are condemned to repeat it” and followed that with the sage advice that “abnormally good or abnormally bad conditions do not last forever”. Charles Mackay wrote Extraordinary Popular Delusions and the Madness of Crowds in 1841: “Men, it has been well said, think in herds. It will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” He followed on with more words of wisdom, best reflected upon today: “Let us not, in the pride of our superior knowledge, turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive.” What am I getting at by quoting these investors of yester-year? Well, returns have been good of late, and while we are happy to be sure, we also know that investors need to constantly reflect upon why in fact they are investing, and what their time frame is. We feel strongly about the longer-term prospects for the businesses in your portfolio. What we cannot know is what the markets will value these businesses at in the next year. As Louis Rukeyser once quipped: “the only thing that’s hard to explain is next week”. So, as we enter the last quarter of an exceptional year of returns, we would encourage you to consider your timeframes for investment. Time will smooth out the ills of short-term risks but as has been said well in the past, fear and greed can be more powerful than long-term resolve. We are not forecasting the year but rather encouraging you to ponder how you might feel to wake up and find stocks 20 per cent lower than they are today. If that were to cause you to be compelled to sell, we should talk. |