It Feels Different This Time, But It Probably Isn’t

No matter how often market volatility strikes, behaviour can be hard to manage with amplified uncertainty.

Life - and investing - comes with its share of unpleasant realities. One of the most infamous of these is behind the latest reality that is roiling the markets: taxes.

Tariffs are a tax and we wrote about tariffs recently which you can read here.

Have We Learned Anything From Previous Market Volatility?

One would hope previous experiences with market volatility would prepare us for the next round.

After all, once we’ve heard an impactful story, we don’t tend to forget how it ends. However, it can be difficult to see how each round of volatility is the same story of typical market patterns when the inciting events seem so different. For example, in 2020, investors knew intellectually that they (and the markets) had survived the last round of market volatility, but they were sent reeling because they had never faced pandemic-fuelled volatility before.

Because every round of volatility feels so different, we try to reconstruct the narrative when we encounter it. So, we start by asking, “Why is this happening?” and “What should I do?”

There are always different answers to the first question; some reasons for volatility are harder to understand, and more concerning than others. The cause of the volatility in this case doesn’t change the answer to, “What should I do?”

Our Advice to Investors: it depends on your specific circumstances but if your timeframe is medium to long, than it can be wise to do what feels unnatural, and the hardest in the moment.

Regardless of how different it feels this time, our guidance to long term investors remains the same:

• block out the noise,

• focus on your goals and what you have control over,

• don’t try to predict or time the markets, and

• stay the course

The strong market recovery in the past two weeks is validation of that. For those clients we spoke with when the markets started falling, they will now see the benefits of our advice to hold course and avoid sudden and reactive moves.

From the standpoint of behavioural science, we know being an investor is hard. It requires people to do at least two somewhat unnatural things: delay gratification by saving instead of spending and embrace uncertainty.

Humans are not naturally wired for either of these approaches, so this requires practice and discipline. But although unnatural, saving and fortitude pay off in the long run as investors can build up wealth and make their money work for them. Again this is where we can add value, providing a sounding board in times of uncertainty, and consistency across all stages of the market cycle with a consistent focus on your goals.

The ride is not always smooth. But over the long run, economies grow, technology and trade develop, and an increasingly interconnected system emerges that creates widespread (but not evenly distributed) wealth with widespread benefits.

Yet, our guidance stands the same as ever because even though it feels different this time, it likely is not. Market volatility is inherent in investing, regardless of its source. We’ve endured volatility before, and evidence repeatedly shows that trying to time the market by making exits and entries underperforms staying the course.

Right now, investors are asking themselves difficult questions. What is the US administration’s next steps? How will the markets and other countries react? What is a narrative that ties all of this together? What will happen next? People want to understand the story they’re in so they can feel confident about their actions. Here, the reality may be that this story is not as simple as we’d like, but in any case, the best action is to hold tight.

As for what’s going to happen next, we don’t know. Nor does anyone else. But it’s worth remembering that good investing is not about having a crystal ball and knowing what will happen next.

Investing is, as it always has been, about having discipline, finding value, seeking diversification, and having the tenacity to endure the inescapable uncertainty of investing and take a long-term perspective.

We don’t know exactly how artificial intelligence technology will disrupt labor markets, or how climate change will affect weather and food production, or how a nascent virus mutation will manifest and disturb transportation networks, or even what the current administration will do next. But the long-term principles of investing remain the same, even in the face of amplified (and self-inflicted) uncertainty.

If you would like to discuss your situation with us, get advice, validation, or a second opinion, you can arrange a time to speak with us. You can book a meeting directly here or contact us at info@blackswancapital.eu.