Monday, November 21, 2016

Importance of historical knowledge when investing

How do you know when to sell an asset?

Well, when people are getting hysterical, you can sense it just by market action ... If you read the press, you can see when everybody's talking about whatever it is that's the best thing, something going to change everybody's life ... it's a whole new era ... You hear the same words every time, every time -they are the same.Oh, how many new eras have we had in history? It's just amazing.

You're talking about using history to interpret the current market.

Yes ... If you understand history, you're probably going to be a much better investor. But you need to understand the basics of how the world works ... And, if you know what's happened before, then you'll probably be a step ahead of figuring out what's going to happen.

What in today's markets do you see and think, "10-15 years from now we're going to look back at this and say, `We were fools'?

Well, in New York, on the stock exchange there are only like 10 or 15 stocks that are holding up the averages. They're all the big stocks like Google, Amazon, Apple ... and all of those companies are going to go on forever, and get bigger. Perhaps some of them will, but, I know, you know, if you look back at the data . This is an extreme example, but if you look back at the Dow Jones industrials Average from 100 years ago, I think there's only one stock left, that's still in.  

Nothing goes on forever. In fact, in one of my books I talk about the need to understand that everything is changing. You pick any year in history, 1900, everything that people knew in 1900, 15 years later it was totally wrong. Everything changed.