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I Know How This Will End

Wow… what a month!

A terrible nuclear disaster, Western military operations over Libya, US national debt concerns and a landmark IT launch. Uncertainty reigns and investors are concerned. Is it time to buy? Sell?

Normally, I don’t even try to guess where the market is going to move in the short (or even medium) term.

As it happens though, I know how this story will unfold.

Not because I’m blessed with some sort of special foresight, or because I think I can read the charts. The reason I can confidently tell you what will unfold is because the month in question isn’t March 2011, but April 1986.

That’s right – all of the events listed above happened in one month, almost 25 years ago.

History Repeats

The terrible disaster at Chernobyl, Ukraine (then part of the Soviet Union – remember that?) happened on April 26, 1986.

US warplanes bombed Libyan targets on the 15th April in response to a bombing campaign in airports and a nightclub in Europe.

The US National Debt reached a milestone level of $2,000,000,000,000 on April 3rd, and IBM released the first megabit computer chip.

(For those who are interested, the current US national debt stands at around $9,600,000,000,000 according to the US Treasury and SanDisk last year unveiled a new technology that they say can allow memory cards to hold up to 2 terabytes of data – around 2 million times that of the IBM chip unveiled 25 years ago – and surely no-one in 1986 could have even imagined the capabilities of the recently released iPad 2!)

An Amazing 25 Years

This isn’t the place to recount a quarter of a century of history, but since April 1986, we’ve notably had two Iraq wars, the war in Afghanistan, the 1987 stock market crash, the tech boom and subsequent bust and Paul Keating’s ‘recession we had to have’.

In Australia, we’ve had 5 Prime Ministers, our dollar has fluctuated between less than $US0.50 and above parity, and the RBA’s interbank cash rate has been as high as 17% and as low as 3%.

Throw in a host of social and political changes, the liberalisation of international trade and the relentless and seemingly exponential progress of technology, and it’s been a truly extraordinary 25 years.

As well as a nostalgic walk down memory lane, reflecting on the last 25 years really shows the futility of trying to forecast the future. Who could have foreseen any of the above, or the multitude of other changes that have taken place over last two and a half decades? Or the things that didn’t change?

We’re not yet working only 4 hours per week or subsisting on protein pills. Robots aren’t yet a fixture in our everyday life (not withstanding the amazing changes technology has delivered).

The Future Awaits

Don’t get me wrong, I’m fascinated and excited by the unknowns of the future. The amazing developments in the last 5-10 years have been stunning, unleashing human potential like never before. I just can’t predict it, and I don’t know anyone else who reliably can.

It is often said of economists – and I’d extend the metaphor to include market-timers and short-term prognosticators – that they exist to make weather forecasters look good.

Crash, Hope & Fear

One of the human race’s great advantages as a species is that we are able to learn and develop. The capacity to understand the past – someone else’s past – and let it guide our future is effectively unique to us.

We can also, with patience and exercise, train ourselves to be self-disciplined ‘learning machines’. Warren Buffett, Berkshire Hathaway CEO and the world’s third richest man, has been called exactly that by his Vice-Chaiman, Charlie Munger.

Since 1986, despite crashes, downturns, recessions, wars, bubbles, commodity booms and myriad other influences, the All Ordinaries index has grown from around 1225 points in April of that year to close at 4715.8 points last Friday.

There were run-ups, crashes, hopes and fears. The market can be a roller coaster. It can be daunting, exciting, scary and exhilarating – if you let it.

Tune Out The Noise

There will always be noise. A bear can always find 10 reasons to sell, and a bull can always find as many reasons to buy on the same day at the same price.

The news headlines can convey fear and optimism only a matter of days apart – and there is more stimuli than ever before. Is it any wonder Warren Buffett famously prefers the relative calm of mid-western Omaha, Nebraska than the hustle of Wall Street, New York?

Whether you remove yourself physically, or just emotionally from the crowd, some distance will give you the chance to work about what really matters – to avoid the headlines and short-term gyrations that only serve to distract you.

Stop, take a deep breath and a fresh look – you’ll be glad you did.

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