Lessons from history: How do long-term investors navigate market bubbles?

asking almost to predict the future, to sense when a bubble is about to happen and to call it, I guess, which is a tough call for, frankly, anybody.

But a simple question to you, and Andrew, let me come to you on this.

Why does it keep happening? You know, bubbles don't just happen occasionally.

It's human nature.

There's a history

of them.

Human nature doesn't really change over the centuries.

So...

Greed is a powerful driver particularly in financial markets and the other side of that is fear and when fear starts to To come to play then you see these absolute collapses It's partly the fear of missing out seeing other people doing well the excitement the the want to be part of something not wanting to stand out and be different it's psychologically hard to stand apart from the crowd and

Right.

So it's as simple as that.

It's human nature.

Even more powerful than greed and fear is wanting to belong, is wanting to be part of a group that's all saying something reasonably similar.

We all feel it in our own lives in different ways.

We don't want to stand out too much.

Being a value investor is about standing out.

Well, this is, I mean, as investors, you're professionals, you have a great deal of experience.

I mean, Simon, does it surprise you that the investment community, that those that are thinking about this subject all the time, that those lessons aren't learned? Or is it impossible to learn the lesson for something that's constantly changing?

I think the problem is there is so much money chasing these areas that if you don't participate, that money will go elsewhere and somebody else will facilitate that.

So I think what we tried to do is just stand back from that and say, look, If everyone's going over there, there may be other areas that are being left behind that might be opportunities where we can have a lot more confidence in the cash we're going to get back, the return we're going to get on investment, the dividends we're going to earn from investing in these companies, the assets we're buying on behalf of shareholders.

So I think one of the great things about having an investment trust like the Merchants Trust is we've got permanent capital.

from shareholders and a board who will back us to say, okay, I can't really be sure about that area over there.

There may be a great opportunity, but in this area here, the stock market, even though it's out of favour, there's some really strong businesses trading at incredibly unusual valuations.

And if we buy them at those levels and hold them for four or five years, we should make a very good return and generate a good income stream.

And so We're not necessarily trying to call whether the bubble is right or wrong or whether that theme is right or wrong.