Investment markets are always driven by something somewhere, but is a function of our human instinct to link everything that happens to a specific cause. Everyday investment commentators grapple to assess the reason why things are up or down. As I write this equity markets are falling, and the narrative today is that Trump has said “things will get worse before they get better.”
Is that the reason, or is it because equity markets have rallied in the last few weeks and investors have decided its probably a good time to take some profits? Maybe the largest pension fund in the world decided to place some trades at the same time? My point is that in the short-term there is an element of randomness in the way investment markets move. Trying to understand the narrative placed on this and adjust accordingly does not guarantee that you improve your outcomes.
Moreover, the society we live in today is arguably more short term than it has ever been. Instant gratification is becoming more engrained through the social media revolution, consequently news is more accessible to everyone than ever before, leading us to have a greater focus on day to day issues. Further than that, investment algorithms across the globe are scouring price moves with an aim to buy and sell in the space of milliseconds for a profit. To go against the crowd these days, you must look long term.
That takes me back to the first meeting I ever had with a fund manager, which was scarily over a decade ago now during my investment internship. He said “as you develop your investment knowledge, you are naturally going to be trying to be better than everyone else. Reading more books and studying more charts than everyone else is not going to make the difference. Its about realising what you don’t need to know, that’s more important than what you do know”.
So fast forward to today, and I think that advice is correct. There are usually only a couple of key factors each year that materially drive our long-term investment outcomes. In 2020 so far that would be the rise of COVID of course, and then secondly the huge global policy response. Irrespective of what Trump says today or tomorrow, the bigger picture stuff is the key, and that is going to mean lower for longer interest rates and a generally supportive environment for riskier assets such as equities over the longer term.
So, although the narrative will change, probably more randomly than people appreciate, our job is to look through the noise to find the stuff that really matters, remembering what our clients need the portfolios to deliver in the first place. Next week, we will look at our portfolios performance in July to see what’s been moving the numbers!