Ignore The Headlines
Over the past fortnight equity markets and financial markets in general, have been volatile around the world. From a 3% one day drop across the US markets to a whopping 35% one day drop for the Argentinian market I can see why investors are nervous.
Equities always carry risk. In fact, if shares didn’t have the potential to lose money over the short term, they wouldn’t see the level of positive returns that investors have grown accustomed to over the past 100 years.
Some of the biggest issues facing markets across the world currently include; the US/China ongoing trade war, Brexit uncertainty and fears as to the potential implications of this, negatively yielding debt or in the case of Denmark negative rate mortgages (I would love to hear the thoughts of some of the most prominent economists of the 20th century on this new innovation), recession fears both locally and internationally, a rush of central banks across the globe reducing interest rates and the more mundane issues such as high valuations, potential for slowing earnings and global competition.
In fact, on the surface it looks like a terrifying time to invest. If you hold safer assets you probably won’t beat inflation/taxes in many parts of the world while if you buy growth assets you are paying a premium for many of the best businesses available.
So why am I bullish?
There’s one simple reason, I take a long term outlook and approach to these things. Over time markets are going to have their up days and their down days. A general rule I try to make my investment decisions by is that when every newspaper I open and financial news site is talking about how a certain event is going to be the end of the financial world I look to buy quality assets.
Remember back to 2015 and you could barely switch on your tv without seeing a pundit talking about how the Greek Debt crisis was going to result in a financial apocalypse? Last year it was how the Australian housing market was going to completely collapse and destroy the domestic economy. So far, prices pulled back a bit (years of double digit growth are bound to revert at some point) stabilised and now the signs are pointing to a recovery in most markets. Are we going to see double digit growth each year for the next 5? Not likely. Are we going to see a normalisation of growth and prices? More than likely.
One of the most important things that you can do as an investor is take a long term approach to these things. To use an old saying about the media “today’s headline is tomorrow’s fish and chips wrapper.”
Over time quality businesses will grow and continue to make efficient investment decisions with their allocated capital. Now some businesses will fall by the wayside and others will take their place. Holding a variety of different investments will help to buffer the effects of short term volatility on your performance.
As long as I am invested in a portfolio of diverse assets spread across sectors, asset classes and industries I sleep comfortably knowing that when I take a 10 year approach to my investments, what happens over the next day, week or month doesn’t really matter.
In fact, because I am regularly contributing to my portfolio I secretly enjoy when the market pullbacks and everyone else gets scared. The reason is simple. If I like a stock enough to buy it at $20 and its now $15 I’m elated to get the opportunity to buy it $15. I get to buy more at a cheaper price!!
The best way to end this is with most basic rule of investing I have ever read "be greedy when others are fearful and be fearful when others are greedy"