17 September 2019

    Sticking to the game plan

    Chris Waters

    Senior Investment Analyst

    Email Chris
    Chris Waters

    Senior Investment Analyst

    Email Chris

     Another day, another Trump tweet. August saw volatility return to financial markets as investors digested the latest trade and economic news (and tweets).

    Investing is an emotional process and can be most challenging during periods of volatility. We are often our own worst enemies. We react based on fear and greed. We focus too much on the here-and-now. This can have a real negative impact on your long run investment performance.

    Having a considered investment plan, and more importantly sticking to it, can help you navigate uncertain times.

    Bad news sell papers, but should not drive investment decisions

    In these days of iPhones and 24/7 news, we are constantly bombarded with provocative news headlines and commentary. It can be daunting trying to make sense of it all and what it means for your retirement savings.

    So why do news providers run with these headlines? Bad new sells papers. Emotional headlines are there to grab your attention. If we make investment decisions based on these headlines, we are potentially making a mistake.

    “Time in the market” not “timing the market”.

    The performance of investors in Peter Lynch’s Magellan Fund is a good illustration of how we can defeat ourselves.  Lynch oversaw returns of 26% p.a. during his 13-years running the fund – almost twice that of the underlying stock index. Despite these amazing returns, he estimated the average investor in his fund only returned 7% p.a. Why was this? Investors got in and out at the wrong times - selling during volatile times or after periods of bad performance and buying after the fund had done well. Buy high, sell low is rarely a winning strategy!!

    Other studies have concluded that the “average” investor underperforms the funds in which they invest by 1-2% each year. And one of the biggest contributors to this underperformance? Trying to time the market.

    Markets generally go up over the long run. Economies grow and populations grow.  Technology improves and we become more productive. However, you will not get those returns unless you are invested in the market.

    We know that recessions can and will happen – economies move in cycles. We do not believe that anyone can consistently forecast in advance when these downturns will occur. So we don’t waste too much energy on worrying about that. Our time is much better spent looking for high quality, growing companies that will generate strong returns for our clients regardless of market conditions.

    What you can do (and how we can help!)

    Investment success comes from maintaining a long-term perspective, staying disciplined and not reacting to short-term noise (or presidential tweets). There are some actions you can take to help improve your chances of making the right decisions:

    • Remove yourself from the noise. Day-to-day volatility in the stock market is completely normal and should generally be ignored. Read those news headlines with a degree of scepticism.

    • Have an investment plan in place. It is easier to focus on the long-term if you have an investment plan in place. Make sure you have an appropriate plan that is right for your specific goals, stage in life and risk tolerance.

    • Stick to your investment plan. Once you have a long-term plan in place – stick with it! Reacting to short-term noise and headlines, or trying to time the market has generally detracted from investment returns. For most people, sticking to a well-considered investment plan is the best option.

    At Fisher Funds, we are focused on actively managing the money of on behalf of the investors who trust us to manage their savings and making sure you are informed about what is happening in markets and your investment portofolios. This becomes particularly important in periods of increased uncertainty. If you do have any concerns or want to revisit your investment plan, please reach out and speak to us.