When I look at asset classes, the same concept seems to be emerging: the addition of new asset classes to the decade-old original asset classes. Darwin called it evolution… I prefer to think of it as being open to change – in historic and monetary terms. So often we hear the phrase: ‘Change is good’. It often is, if all the factors have been considered.
The traditional asset classes are bonds, cash, property and equities. A number of new asset classes have been added to these, including hedge funds or alternative investments, as well as other forms of investing, such as works of art and other collectibles. Indices have been created to measure the worth of the latter investments and pit them against other asset classes, eg the Mei Moses index. Remember that some of these asset classes are not fully tested and this may prove to be problematic in the future.
Referring back to the “wonders”, there is also the unwritten eighth wonder of the world which Einstein classified as compound interest. This will, of course, always remain a true wonder and cannot be reclassified.
Where money is concerned, there are often unwritten rules which will deliver rewards if investors abide by them.
The first of these rules is one I preach endlessly – Patience. Patience in investing (and particularly in volatile markets) is a true virtue and will be rewarded.
I refer to history again to look at various factors that have influenced markets, and how markets have always rebounded after catastrophic events, once panic subsides and the fundamentals are re-examined and found to
be showing positive value.
If we understand what we are investing our money in, and are in for the long haul, we cannot watch endless market reports and have stock watches alerting us each time there are changes in markets. This is unsettling and it complicates matters. I reiterate that patience is a virtue.
The second unwritten rule is Diligence. We need to research and understand what it is we are investing our money in. If we feel satisfied that we have made a sound investment decision, we must believe in our judgement and remain committed. Diligence and Patience go hand in hand.
The third rule is Attraction / Respect. If you have a healthy respect for money, even if you have plenty of it, you seem to attract more. A popular phrase comes to mind – ‘the rich get richer’.
Occasionally there are times when people believe that they can rewrite the rules governing money. One example is the dot.com boom where traditional methods of valuations were thrown out of the window in the belief that there was a new order (or way of doing things). Another example is the recent US sub-prime crisis where people thought they could rewrite the rules in property and lending markets.
Who knows which Seven Wonders will grace the list in the next 30 years. What we do know is that change happens. It is not always easy to accept because we all tend to resist change. However, change can certainly bring about positive results. Notwithstanding this, I believe that the rules for looking after our money will always stay the same.