The world we live in today moves at lightning speed. Information is available to us at our fingertips, and news travels faster than ever before. In the realm of finance and investing, this can lead to investors panicking and making fear-driven decisions that often cause judgement errors.
Make no mistake, the collapse of Silicon Valley Bank and Signature Bank are events worthy of attention. We know, from the GFC, what financial contagion can look like. It’s ugly.
However, some lessons have been learned since then. Regulators are quickly trying to install the antidote - confidence - through press and action (like securing depositors).
So, where to from here?
It is understandable to feel worried or nervous about developments in the macro-economic environment but the worst thing that you can do is make your decisions based on emotions when investing in the stock market. Investing well is a very rational activity; emotions take the logic out of the decisions you make.
Investors who are driven by emotions tend to become overreactive to every small change in the market, leading them to buy or sell assets based on their feelings rather than rational analysis. This behaviour can cause them to miss out on potential profits or incur substantial losses, as they make decisions based on short-term fluctuations in the market.
In today's world, it's easy to fall into the trap of constantly checking news sources and social media for updates. However, this can lead to a constant state of anxiety and panic. It's important to remember that the news media is in the business of generating clicks and views, and sensational headlines and fear-mongering sells more views than calm and reasoned analysis.
The key to successful investing is to stay focused on your long-term goals and not let short-term market fluctuations sway your decision-making. This means ignoring the noise and chatter that surrounds the markets and instead focusing on the fundamentals of the companies and industries you are investing in.
It's also important to remember that investing involves risk. There will be times when the market goes through a downturn or a particular stock or sector experiences a setback. However, investors who stay the course and remain patient through these periods are often rewarded in the long run.
If your portfolio is highly concentrated with financial companies, this poses a risk and not just due to the collapse of banks in the USA. Diversification across sectors, borders and assets could go a long way to de-risking that strategy!
While it can be a virtue to be a bit impatient when it comes to our own careers or business, that strategy is usually not so intelligent in investing. In investing, a lot more patience and rational behaviour are needed.
While it is difficult to call the bottom we know from history that after corrections we get really strong market periods - while we may not be at the bottom nobody is going to ring the bell for you and this is likely to be a good period to pick up companies you have wanted to hold for a long time but they were too expensive.
Thinking back to the stock market crash of 2008 and 2020, that was a perfect time to invest. The issue was, however, that even experienced investors were scared.
The thoughts of Howard Marks stick with me. When recalling the extreme uncertainty of 2008, Marks said:
“I think you can reduce it to, either the world ends, or it doesn’t. . . . And if it doesn’t end and we didn’t buy, then we didn’t do our job. That made it awfully straightforward.”
Markets & Commentary
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.