Keep Calm and Carry On

A few weeks ago, I wrote that there was so much going on that it was hard to know where to start. 

After events this week, I am not sure of a stronger way of putting it other than WTF!

But history shows that markets have bouts of increased, some would say insane, volatility. 

It’s volatility that scares investors. One structural difference between real estate and stocks is daily volatility. No one I know checks the price of their property every day simply because we don’t think about real estate like we do stocks. Funnily enough, people love leverage in real estate but not in stocks and the reason why is you can witness the volatility in stock markets. 

But volatility offers the smart investor opportunities to buy and sell when market act irrationally. In fact we want volatility because that allows us to buy or sell stocks at prices that don’t reflect their value. 

As we know everything has an equal and opposite reaction and so the current bout of high volatility will at some point settle down and we will go back to “normal”. As we have spoken about on the podcast it will be a new normal where we expect that over the longer term there is potential for lower average returns as globalisation and all its benefits seep away largely thanks to a trade war between the US and China.

Most in the finance sector say markets are unpredictable, but history shows that not to be the case. Individual companies may be more unpredictable, but the stock market as a whole is fairly predictable over the long term as history shows. The world goes through period of globalisation and then de-globalisation. 

So we are on the cusp of serious change and that means we need to be a little more aware and adaptable in investing. Former asset classes that have outperformed over extended periods will most likely revert to their long term averages while some newcomers will grasp the mantle. 

So when the volatility frightens you, stay calm and take a longer term view even if in the short term, the here and now you are experiencing is scary and your portfolio is falling in value. 

As I have mentioned elsewhere, when one company strikes trouble, the government usually doesn’t step in to save it, but when the whole economy is upended it becomes necessary. 

 Remember the stock market can do one of two things - go up or down. That’s it. We have spoken about cash many times on the podcast, and in times of high volatility it can be your best friend. But don’t rush in and panic buy or sell. 

While the future looks uncertain,  I am confident we can navigate the future largely because we focus on not losing money and staying true to the 8 principles we teach.