Investing, in the final analysis, is a matter of faith. This, I think, is an important fundamental to understand. I am not writing of “blind faith.” Nor, necessarily, religious faith. It is my conviction that there is no such thing as blind faith. If a person acts blindly, it is not out of faith; it is out of foolishness. Faith always has content, whether well articulated or not.
The content of an investor’s faith includes faith in human nature. Human beings have a natural drive to want to do better for themselves and for the world in which they live. We easily understand the part about bettering ourselves, some would call it greed. For some people, this drive is greed, for others it is an honorable desire to provide for themselves and their loved ones.
The part about bettering the world in which we live may be altruistic or it may simply mean that I want the community in which I live to be more pleasant for my own enjoyment and my own enjoyment is hindered if my neighbors are in poverty and squalor, therefore I want them to do well also. That is part of why people move into “better neighborhoods.”
As an investor, whether I articulate it or not, I am counting on these kinds of forces to continue to be in effect in the corporate world where I invest my money. I count on the fact that the CEO wants to be “a winner” and wants his bonus – either because of his drive to provide for himself and his loved ones or to fulfill his insatiable greed. I also count on the fact that corporate leaders know that in order for their products to sell, they have to be making the community better in some way – or at least it has to be perceived that way, otherwise, consumers will not consume that product.
Economic policies and government programs come and go, but as long as human nature continues to be free to be expressed in commerce, I can invest successfully. This is a basic tenet of the investor’s faith. It doesn’t require religion; it just requires a realistic view of human nature.
This is basic to free market economics and is heresy in the economic theories of socialists or communists. Those economic systems have a different view of human nature.
There are other much more academic parts of the investor’s statement of faith and this blog is full of those statements that have come from the work of men like Harry Markowitz, Eugene Fama and Ken French and others. Investing is not, in the short run, a sure deal. There are risks (another of the tenets of the investor’s faith) and there are techniques to mitigate risk. Just keep the faith.
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