TO BUY OR NOT TO BUY?
INVESTORS HAVE NEVER FACED A PANDEMIC AND ECONOMIC COLLAPSE AT THE SAME TIME. PETER GUY OUTLINES THE ISSUES THEY MUST CONFRONT
easing, risk-free rates and price discovery, they’ve continued to be distorted since the global financial crisis in 2008. Quarantining has advanced the digitalisation of life even more quickly than the previous trend. Taxes will probably increase in most developed countries to cover the debt generated for economic recovery.
Political eruptions and new governments will begin to rock markets.
It makes perfect sense to exploit these trends by investing in financial assets that return at rates above inflation, unlike your bank deposits. Markets are made of people who react in fear to scary moments like 2008 and March 2020 by panic selling their investments and then panic buying. Then, there are those who are disciplined enough to remain calm, stay the long-term investment course and even take advantage of events. Those who are always scared never seem to profit and grow their portfolio over the long term.
The online world has accelerated the growth of already large technology companies, such as Amazon and Zoom. In the worst part of the coronavirus crisis, some investors panicked and sold stocks while others saw falling markets as an opportunity. Markets always bounce back, especially in the US. However, this requires an abiding belief in capitalism, markets and equities.
Investors should run their portfolio as a business enterprise, not a provider of raw material for online trading platforms. Be a collector, not a trader of equities and use any falling market prices to build a significant position. There is only one reason why you shouldn’t invest – if you can’t deal with daily volatility and its precipitous declines and waves of panic selling.
Most do-it-yourself investors invest badly. But, investing in funds isn’t necessarily a simple solution to learning how to invest. Working closely with your financial advisor or private banker on developing the appropriate investment opportunities is the best way to gain experience – especially in times of uncertainty. Remember that times have always been uncertain.
It still makes sense to buy quality, blue-chip stocks at reasonable and attractive valuations. Research from Vanguard, covering almost 160 years of market history in the US, the UK and Australia, demonstrates that time (holding over the long term) in the market is a more successful strategy than timing the market.
Over these 16 decades that covered a broad range of economic cycles, political tumult and event-driven uncertainties, investors generated better returns being fully invested 65-70 percent of the time rather than trying to time one of the market’s periodic, healthy, and normal pullbacks or declines. Conversely, 30-35 percent of the time, investors who could successfully time and buy into the market made even stronger future returns.
“All money is a matter of belief,” said Adam Smith. Yes, the future is dark and murky, but it does come and the spoils go to those who figure it out. You have to find your own method in the market madness. And don’t forget, the danger is greatest when absolutely nothing makes sense.