• Wise investors know what they can and can’t control:
WHAT can you do about a market event, correction or shock after the fact? The best course of action is to view it as a learning opportunity and take action to ensure that your risk profile, investment strategy and asset allocation have been determined correctly.
It’s important not to approach this in a knee-jerk manner; instead, it requires you to do the legwork, and to re-evaluate your portfolio and its objectives soberly, and make changes only where they are clearly called for. It is also a good opportunity to consider changes to your portfolio, to preserve capital by controlling downside risk.
Research has repeatedly shown that your behaviour negatively impacts your returns over the long term.
Ask yourself how many of these investment transgressions you are guilty of:
• Reacting emotionally to market news – selling or buying without proper research or a strategy;
• Forecasting the market’s every move;
• Becoming greedy and trading for short-term gains based on gossip;
• Starting with a structured portfolio but soon ending up with a mess because of undisciplined buying;
• Checking the value of your portfolio daily;
• Hiding in cash when markets are turbulent;
• Forecasting binary event outcomes and structuring your portfolio accordingly; and
• Forgetting the tax consequences of your decisions until it’s too late.
The wise investor remembers that long-term investment principles prevail:
• Equities (growth assets) outperform inflation over time, despite short-term volatility; • Diversify, diversify, diversify; • Cash is not a suitable longterm investment;
• No single asset manager has a monopoly on asset management skill; and • Research pays exponentially. Moreover, wise investors understand that there are things they can control, such as their behaviour, and things they cannot control, such as the ups and the downs of the market.
If you have been guilty of any of the investment transgressions described above, the best defence is putting a strategy in place to remove the temptation from your investment equation and to focus on the element you can control: your behaviour.
A qualified investment adviser can help you to do so in a disciplined manner by developing a tailored strategy to help you remove emotion from your investment decisions.
We know beyond a doubt that the investment market will have many ups and downs in the future. Use the current opportunity to understand the triggers that make you act impulsively and, ultimately, cause value-destroying behaviour, and ensure your portfolio is well diversified in line with your risk profile. By taking these steps today with the help of your adviser, you can ensure that your portfolio is robust and better able to ride out the next big market event.
Understand the triggers that make you act impulsively and cause value-destroying behaviour.