You might think of ABBA as a Swedish disco group known for flashy costumes and catchy pop songs.
But they’re also a source of deep wisdom that can be applied to investing and the stock market. Although, to be fair, that’s not what they intended it to be when they wrote “Waterloo.”
These song lyrics include two important lessons.
First is this: “The history book on the shelf is always repeating itself.”
We know that market patterns tend to repeat. Learning market history is always time well spent. But all history contains lessons for investors. That includes the Battle of Waterloo.
More importantly, we have the line: “At Waterloo, Napoleon did surrender.”
That sums up the extent of what most people know about that famous battle. The lesson for investors comes from digging deeper…
Learning From Napoleon’s Defeat
Napoleon Bonaparte originally came to power in 1799. He brought an end to the French Revolution, which started with good intentions but led to the deaths of hundreds of thousands of French citizens.
After restoring calm in France, Napoleon set off to conquer Europe. This resulted in at least 3.5 million deaths. In 1814, an alliance of European powers defeated Napoleon and exiled him.
Less than a year later, Napoleon decided to return to France and resume his battle for Europe. He took the offensive and moved forces into Belgium. From his perspective, that was an ideal location for a battle. If he won, he would split the forces against him, allowing him to wage war against smaller armies, one at a time.
However, battle locations tend to be determined by fate rather than generals. Napoleon ended up being forced to attack near Waterloo. A battle occurred over three days in June. Napoleon won the first three encounters.
Napoleon was winning what would prove to be the final encounter when a large Prussian force arrived late in the day to reinforce the Duke of Wellington’s British forces.
Wellington is an inspiration for investors.
He focused on the big picture. He knew that Allied forces had lost the first three encounters. He also knew that he was preparing for a decisive battle in the center of the field.
Other commanders might have redeployed forces to prevent losses in those minor skirmishes that Napoleon won. But Wellington resisted that temptation. He had a battle plan — and he executed it.
Wellington chose to position his forces on a ridge near the town of Waterloo, which offered a strong defensive position. The ridge allowed him to conceal his forces from Napoleon’s view and provided a natural barrier against the French cavalry.
He prepared for what he knew would be a decisive moment. Then he waited for Napoleon.
Wellington’s eventual victory helps us understand how to win in the market.
Commit to Your Long-Term Investing Plan
Investors often lose sight of their long-term goals. Maybe they own a stock they expect to do well in over the next three years.
Then the company misses earnings by a penny the quarter after they bought. The stock sells off, and they decide to unload their shares with a small loss.
The next day, analysts may upgrade the stock, but it won’t matter at that point. The investor who capitulated no longer has a position.
Modeling after Wellington, investors would know to ignore minor setbacks. They would stick to their plan.
History books are filled with battles like Waterloo, where the winning generals overcame initial setbacks to achieve victory. That sounds a lot like investing, but many investors still ignore these history lessons.
In the markets, as in battles, it’s better to be like Wellington than Napoleon.
Take defensive positions and execute your plan. That leads to victory — and profits — in the long run.
Regards,
Michael Carr
Editor, Precision Profits
