STAY INVESTED AND MAINTAIN A LONG-TERM VIEW
The global political and economic landscape has been in a state of flux recently. Global inflation, rising interest rates, Russia’s invasion of Ukraine and China experiencing economic uncertainty are all factors contributing to a complex environment for investors. The financial markets have also been impulsive over the past couple of months and we have seen major movers up as well as down. Years ago, JP Morgan was asked, what will the stock market do, he answered “It will fluctuate”.
The past couple of months has borne this out. We have seen the investment industry overreact to economic, corporate and political news, but this is not all bad news, however, as volatility also has the potential to create opportunity.
It is a basic human disposition to be focused on the short term. We are quick to forget that markets have had a phenomenal run over the past decade and volatility is bound to occur. The fact remains that the overarching tendency for stock markets has been upward over the past 100 years. When investors “stick to their guns” and maintain their convictions and sound investment principles, we believe it will always deliver in the long term.
In our fast-paced world, quick access to information allows us to be in touch with current world events and to view how decisions made by politicians and regulators influence our markets. The impact that active traders exert on share prices can be enormous when they react to information instantaneously. These short-term reactions cause investors to doubt the market, opting to get out after they witnessed a downturn, and wanting to return after upswings have begun.
Are these short-term reactions a key to great investment returns? Or is a long-term investment strategy based on long-term fundamentals the key to unlocking these returns?
If we observe market movements over the last two decades we find some clarity on this: