December 17, 2003

I have sometimes heard investors refer to investing and their faith in the markets moving steadily upwards over time as having "religion". I believe that you need to have a core belief in the markets creating value over time or you really shouldn't be in the markets - it will just drive you crazy. Only a core belief in long term growth can get you through the really tough down cycles and significant market corrections. Losing lots of money can really test the faith.

I believe that your faith in the markets is directly related to the confidence that you have in regards to the specific investments you have made. That is why I am a fundamentalist when it comes to investment decisions. I want to buy into companies that are great companies with great franchises, because, I am more confident that those companies will last and prevail over repeated market cycles. The confidence that is built through due diligence, monitoring, and developing an understanding of businesses invested in, will create an understanding of the dynamics of that business and the effect of market cycles on it. In short, you know the business isn't going to disappear, even if the economy goes through a down cycle. As a result, you have faith in the recovery because the probabilities are overwhelmingly in favour of recovery.

Investment "faith", is a faith built on a foundation of knowledge and a strong probability of future success. Nothing is a sure thing, but when the probabilities stack up in favour of success, it usually happens. I have faith in that.