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Fear continues to dominate investor behaviour
The extreme volatility of the world’s share markets continues with fear dominating most investors’ behaviour. Despite advisers and fund companies doing their best to reassure nervous investors that markets will recover, the media is doing its best to keep people focused on the short term gyrations with daily headlines boldly quantifying the value that has been lost. Those of you who are my regular readers will remember my statement that perhaps my best piece of investment advice is “don’t read the papers”, because much of what is printed about investing and the share market is sensationalistic and designed to sell papers.
For many investors the biggest obstacle to investment success is mastering their emotions particular during periods of volatility when they become focused on the short term movements in the value of their portfolio. Often when emotions rule, investors end up making poor decisions which often result in selling their investments at or near the bottom of the market and only returning to the market once it has risen substantially. This behaviour of selling low and buying back when prices are higher results in portfolio performance that is significantly less than the overall market. The volatility of returns (risk) of share investing is the reason share investors earn higher long term returns than they do in low risk alternatives. Volatility is the price you pay for the higher returns.
Investing when the markets are dominated by fear and when there are many proponents of doom and gloom, takes courage and the ability to control one’s emotions. At times like these successful investing requires counter intuitive behaviour. Legendary investor Warren Buffet once said "
To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What's needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding that framework."
I was recently sent an article published a couple of years ago by US money manager Davis Advisors titled “
The Wisdom of Great Investors”. I am including it in this month’s education section of our newsletter and encourage you to download it. This article is an excellent piece and will take less than 10 minutes to read. Hopefully it will help you put what is happening today in perspective and help you to understand how to deal with the current volatile environment.
Michael Lannon
Founder & Executive Director