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How style affects investments

CAN you imagine how mundane life would be if we all conducted our lives in the same way?

We all behave differently in both business and in our personal lives.

When I retired as CEO from my former company, one of the assistants who had worked for the company for many years remarked to me that she was amazed at the difference in style between me and the new CEO.

She commented that I epitomised the concept of "the early bird catches the worm", while she found the style of her new superior epitomised by the statement "the second mouse gets the cheese". She was absolutely correct.

There are different management styles and ways of running a business.

Many successful people have reached the top of the ladder because of their different styles.

The first being the desire to succeed with no consideration of failure, and succeeding because they were driven by the fear of failure.

To illustrate this, I'm reminded of the story told about Sol Kerzner while flying with the directors of SA Breweries in a helicopter when he pointed out a vast piece of barren land in the then territory of Bophuthatswana.

He remarked to his co-directors that he needed money to build an international holiday resort; a world-class destination where he would attract the best entertainers in the world.

Kerzner never considered failure. He was driven by a desire to succeed.

Warren Buffett, on the other hand, has a very different style. He only invests in companies he understands and does not invest in start-up operations.

And, as with investments, investors seem to take two very different, alternative approaches.

The first is where investors have an overall understanding and put together a plan of action to achieve their objectives.

They are fully aware of the volatility and risk in markets but are mindful that these will be their friend in the long term.

They understand that the only way they can beat inflation is to take some risks and a long term view.

They do not look back at what's happened as they understand the fundamentals of investing.

They are not sidetracked by sentiment, emotion or daily noise. It's obvious that this style is far more positive and reaps results.

There is nothing wrong with understanding what went right and what went wrong, but it's dissociating oneself from the emotion that's important.

The second type of investor keeps looking back at how much they invested and regularly looks at the value of their investments.

This creates an unnecessary emotional rollercoaster ride, particularly when all the bad news can negate the good news.

These investors spend their days tracking the investment negatives and making decisions based purely on sentiment and emotion because of the fear of seeing their portfolio's values diminish.

The difference between the two investment styles is that the first understands that, during every market cycle, there will be ups and downs and will recognise and seize opportunities which exist when everyone else is selling.

The other is dictated to and ruled by negative emotions such as greed, panic and fear.

My question to you as an investor is, what is your strategic style?

If you are one who keeps looking back and not forward, chances are, you will not achieve the best long-term returns.

  •  Bryan Hirsch is a financial adviser. E-mail: bryan@bhca.co.zaweb

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