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24/2/2016

6 Comments

Conquer Your Fear As There Is Never A Good Time To Invest

 
​Let me know if any of these sound familiar to you:
​
2013 Analyst: “We are deeply concerned about the sharply rising 10-Year Treasury Yield as a headwind for shares. The end of quantitative easing and the Federal Reserve’s unprecedented monetary policies may forestall further gains in equities.” Total return of SPDR S&P 500 ETF (SPY): +32.31%
2014 Analyst: “A sharp drop in virtually all commodity prices may be signalling a contraction in the global economy and warrant reducing exposure to risk assets. Furthermore, the strongest performing asset class is the 30-year Treasury bond, which is a virtual assurance of the coming apocalypse.” SPY total return: +13.46%
 
2015 Analyst: “We are worried that market breadth is deteriorating so rapidly. The “FANG” shares are the only bright spots in an otherwise bleak investing landscape. In fact, the average publicly traded company is now firmly in bear market territory.” SPY total return: +1.23%
 
2016 Analyst: “There are a number of issues moving our market currently, some of which give us cause for concern & hence we are taking a more defensive stance in 2016. We are in unchartered waters”: SPY total return: TBD
 
Should be interesting to see how that last one ends.

Those aren’t all real headlines, but very-close approximations based on very real themes that have assaulted investors over the last four years. I could go further back in time to sensationalise the concerns of market participants in the cross hairs of any given moment, but I think the point has been made.

The share market never looks perfect. There is always something to worry about.
 
If you are waiting on a specific point of certainty in order to invest, you could be waiting a very long time. Currently, it’s oil and China. A year ago it was the Euro Zone. There are always going to be wars, elections, corruption, debt cycles, share upheaval, commodity insecurity, and a whole lot of people who are bigger, faster, and smarter than you are in the market.  In addition, there are shifting cross currents that offer little in the way of predictable patterns.

For example, right now the stock market is entirely fixated with the day to day fluctuation in oil prices. Shares want a rebound in oil to boost the sickly energy sector, prop up the credit markets, and generally re-initiate a sense of inflation or consumption in the global economy.

Years ago, oil prices were a thorn in the side of shares. If you saw a 5% jump in overnight crude oil futures, you could pretty much count on a big drop in the share market. Funny how perceptions change over time and “rules of thumb” seem to disintegrate under differing global circumstances.
​
This all goes to prove a point. 
There is no certainty when it comes to investing.
There is only process and discipline to guide you through the difficult periods. Much of that discipline may involve tuning out the noise of the media that is constantly focusing on short-term themes or sensationalist headlines. They aren’t intentionally trying to hurt or persuade investors down any particular path. They are just motivated by different forces than we are.
 
There are going to be periods of turbulence that test the resolve of even the most stoic of investors. So it's imperative that you lean even further on your specific philosophy during those tumultuous times to achieve the outcome you want.

For me, the key is to recognise the things you can’t control – the markets’ daily ups and downs and the daily noise from the media – and focus on the things you can:  
  • Structuring your portfolio that pairs multiple asset classes together to smooth out volatility
  • Taking risks you feel comfortable with
  • Ensuring those risks carry a reliable reward
  • Thinking long-term - invest, don't speculate
  • Managing emotions
  • Keeping a lid on costs and taxes
  • Staying disciplined

​I speak daily with investors who have been chasing their tails with individual shares or sectors and trying to divine the next big trend. However, in my opinion this type of environment is more conducive than ever to avoiding those hit-or-miss propositions by committing to broadly diversified and low-cost index funds or ETF’s.
 
It’s not sexy, but it is a big stress reducer overall and will likely keep you from making those emotional decisions at inopportune times.

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6 Comments
Gemma
23/2/2016 07:41:09 am

Tony, I'm a bit nervous about share investment and an even more nervous after reading this. Why invest in shares at all, just stick to property which is far more stable?

Reply
Tony
2/3/2016 06:23:32 pm

Hi Gemma, there is nothing to be nervous about, as long as you have time on your side. I urge you to read this post:

http://www.wetalkmoney.com.au/blog/top-10-investment-tips

They set out my top 10 tips for a successful investment experience.

With regard to property being less risky than shares, I'm not so sure about that. I think they are quite similar in many respects, it's just that shares get traded each day. Investor sentiment changes daily, hence the daily ups and downs in prices. A particular property on the other hand might get traded once every ten years, and all we see is the growth.

What if it were possible to hold an auction on your property every Saturday morning, would you see variations in prices from week to week? Undoubtably, yes. Some weeks you may not even get a bid.

So in my view, the property market is just as volatile as the share market, you just don't get to see it.

Reply
Hugo
23/2/2016 02:48:56 pm

Sounds silly to me, if past performance should be ignored, what else is there to go on?

Reply
Tony
2/3/2016 06:56:48 pm

Hugo,

Read this and give me your thoughts.

https://the-international-investor.com/investment-faq/choose-best-fund-manager

Reply
Jeremy Kwong-Law link
29/2/2016 01:43:03 pm

Great post. Can't agree more that the financial markets (perpetuated by the financial press) keeps spinning in circles in an attempt to justify what is actually irrational trading / "investing" behaviour.

@Gemma - if you look over the long term, the sharemarket generally provides higher returns. You have to get comfortable w the daily / weekly / monthly / yearly fluctuations. But if you are investing for the long term, you only need to worry about the price when you exit. The fluctuations in the mean time doesn't matter to you

This is the hard thing about shares. Behavioural Economics show us that we are bad at acting completely rational and ignoring all the bad media. But the best strategy is to actually ignore it

Property has the advantage that you don't actually know the price / value of your investment until you sell. Making it easier to ignore price fluctuations

Reply
Tony
2/3/2016 06:28:17 pm

Thanks for your contribution Jeremy

Reply

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