Global markets have experienced a spectacularly smooth run, resulting in pleasing growth in most portfolios up to the middle of July. Subsequently, a few tumultuous weeks, marked by sudden geopolitical tensions and unexpected economic data, have seen markets tumble quickly. Suddenly, people are talking about a crash and want to discuss strategies to mitigate losses.
It's important to remember that market fluctuations are a normal part of the investment journey. While we enjoy seeing our investment balances grow, occasional declines are expected. In fact, a 10% decline in global equity markets occurs in half of calendar years, reinforcing the normality of these fluctuations and helping you feel more at ease during these times.
Market declines are as inevitable as the ebb and flow of tides. They are not anomalies, nor are they reasons to panic. The belief that we can predict and prevent market declines is a fallacy. Accepting this truth can bring a sense of relief and a more realistic perspective on market behaviour.
Yet even professionals like us fall for the temptation to create the illusion of certainty. We like to discuss economic data and investment trends as if they can give us clues as to what will happen next.
Sometimes, I still fall back into old stockbroking habits of confident directional views. It is just so alluring. It makes you think that you appear more intelligent and skilled. After all, society rewards confident voices.
We now understand that the temptation to seek certainty is part of human behaviour. However, we must resist this urge. Doing so empowers us to avoid destructive financial behaviours like selling out of long-term investments when markets are down or investing in seemingly certain Ponzi schemes.
As our clients’ financial partners, we cannot promise certainty. If we do, we hurt our own credibility by creating false expectations. We must rather help our clients become comfortable with the normality of uncertainty, which means understanding that uncertainty is a regular part of the investment journey.
Getting comfortable with the discomfort of uncertainty will not only help us with our money but it will also help us navigate an increasingly uncertain and fast-changing world.
The discomfort of uncertainty is a feeling we must learn to live with.
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Kind regards,
Sunél