Ask the average person to define a financial plan, and chances are they’ll describe an investment strategy. And for many people who call themselves advisers, that’s what it amounts to, more or less. But a real financial plan is so much more than that.
Terry Smith manages the Fundsmith Equity fund, which is the largest unit trust in the UK. Smith’s strategy of investing in only a few, high quality companies for the long term has been highly successful. But there is one thing he refuses to try to do: “There are two types of people when it comes to market timing,” says Smith. “Those who can’t do it, and those who know they can’t do it. And I know that I can’t do it.”
You’re in the supermarket and you’ve forgotten the shopping list. After soldiering on as best you can, when you get home you realise you only remembered the items towards the end of the list. Congratulations, you’ve been struck by the recency effect.
The story of Tesla’s share price is extraordinary. The company’s stock price has gone up more than 500% in the past 12 months. Shares in Elon Musk’s company were trading at around $230 at the end of July last year. They are now more than five times higher, in the region of $1 450.