January 14, 2016

It will fluctuate

This response to the posed question “What will the stock market do?” is generally attributed to either J.P Morgan or J.D Rockefeller. Who actually said it, and to whom, is of little import. Far more usefully, it is an axiom that one should keep in mind during periods of enhanced volatility, such as now.

Current volatility levels are understandable, we have the confluence of: rising interest rates in the US; sluggish European economies; Sino-Russian territory expansion tensions; the spread of ISIS, lack of transparency as to the state of the Chinese economy; cratering oil and iron ore markets due to aggressive supply side responses to falling markets – to name but a few factors.

The thing is, global markets always harbour some economic and geopolitical concerns – the horizon is never cloud-free. Going back through the years: China; US economy; European economy; Australian mining bust; Australian housing bust; Portugal; US debt crisis; Ireland; Greece; Credit markets; Lehman Brothers; Gulf Wars; Bin Laden; 9-11; Tech bust; tech boom; LTCM; Russian default crisis; Asian currency crisis. So that’s back to 1997, and I’d be lucky to have listed half of the major market moving factors of the day.


Secret number one:
Understand that factors will always exist to make markets move – be apprised, but not paralysed.


RBS’s exhortation this week to “sell everything” is laughable on so many levels. First off, no-one, that’s no-one, knows for sure where the market is headed in the short term. RBS certainly don’t, because presumably if they did, would not “Sell everything!” back in April when the ASX 200 Index was a hair’s breath from 6,000 [20% ago] have been better? Perhaps they did issue such an edict? Oh…no they didn’t.

Secondly, compounding this fallacy is the implied message that “We will know when to get back in” – Riiight…see point one above.

Thirdly, and trying not to be cynical, I’d have to refer to this style of “advice” as the scorched earth, bring forward the next two years’ worth of brokerage into the next few weeks sort.

Lastly, it is at the complete other end of the spectrum with regards to the prudent principles of compounding wealth in a measured fashion.


Secret number two:
A diversified and regularly rebalanced portfolio will outperform any single asset class over time with far less volatility.


The key to your short-term sanity, medium-term prospects and long-term wealth? Apply both secrets in equal measure.

Make sure you have a process for dealing with volatility

At Minchin Moore we take the novel approach of focussing our time and attention on the things we can actually control, whilst remaining cognisant of the things that we can’t. Some key elements here are:   Questions we can’t confidently answer (the ridiculous list): Will markets go up or down? Is [Read More]

January 14, 2016