I often get asked, so what will the market be doing? It seems to be about to collapse? If you were so clever why aren’t you rich?
I always respond, “have you checked the weather forecast recently?”. Ok, I agree it is pointless in Dubai, it is hot, tonight it will be less hot and tomorrow hot again. I am referring to when we go back to Europe.
The weather forecaster will talk about the next few days with lots of get out clauses. Ask them what the weather will be like next year and you will not get an answer. Yet they have all the tools to give indications, but only on the short term.
Try watching television and listening to the economists or advisors. They always tell you what happened after the event, it is a bit like my wife who is always saying I told you so. Then comes the short-term volatile with potential. Sounds just like a weather forecaster.
I want to know what will happen in the next 12 months. Well, just like the weather forecasters they have no idea and are just telling you a story, they will talk about interest rates, policies, trade tariffs and so on. It is however just a story justifying the recent market levels due to past policies.
The reason is that the markets keep getting hit by black swan events, these are rare events that can’t be anticipated.
I have been to various conferences and each expert will come up with their own interpretation about the future direction of markets, they will always be cautiously positive, but they will all have different perspectives and maybe referring to different sectors of the market.
If only it were not for those black swan events i.e., OPEC oil Embargo 1973, October crash 1987, Invasion of Kuwait 1990. Mexican Peso crisis 1994, Asian crisis 1997, 911 in 2001, the big Kahuna of 2008, need I go on.
These are just the major events but what we do see is the regularity of such black swan events occurring.
We have no idea about where the market will be at the end of the year or at the end of next month or even where it will be next week. So, we may as well stop playing this guessing game and letting our emotions drive our investment decisions.
Do not try market timing, there is the age-old joke about there being two different types of market timers, the first are those that do not know what they are doing and the second are the ones that don’t know that they don’t know what they are doing.
What is the answer? Listen to me? Or ask the people who manage intelligent money?
They will tell you that they do not try and guess the market, they will try and create a portfolio that will grow in good times and protect them in bad times.
We know that stocks with dividends being reinvested outperform than average. They also know that different asset classes perform differently each year but often with similar long-term returns. They also know that there are things you can control such as costs (which have a huge effect on portfolios) & risks (buy different asset classes and rebalance on an annual basis).
This way you have prepared yourself for those inevitable black swan events.