Meditations for investors
By Carmel Fisher, Managing Director
01 November, 2016
By the time you receive this newsletter, the American election will be done and dusted and life will have returned to semi normal.
It will be semi rather than fully normal because after an ugly campaign focused on the personalities rather than policies of two unpopular candidates, the election aftermath will be like nothing we've seen before.
There will be a semblance of normality because, as we've previously stated, no elected President — whatever their majority or popularity — can make wholesale changes or implement drastic measures that will derail the orderly progression of the US economy. There will be plenty of time for the world to get accustomed to the new American President.
Apart from the US election, investors have had plenty to occupy their minds in recent months, with anticipation of US interest rate hikes providing enough angst to stop markets making any real headway. There's been new news on all manner of things, lots of company goings-on and plenty to keep investors glued to their screens. But little that has been actionable or market moving.
With this market backdrop, I was interested to read a summary of Marcus Aurelius' Meditations. Sometimes in frustrating markets like we're in now, investors can question their investment philosophies and be tempted to take action, any action to get things moving along in the right direction. Nobody likes limbo and prolonged uncertainty, but that's what we've got, and we might continue to have for a few more months yet.
There's a lot in Aurelius' meditations for investors that might be useful right now, to avoid straying from time-tested investment approaches:
- You aren't in control of much. You can't control other people and how they act. All you get to control is how you respond. As an investor, you are in control of very little. You don't decide when and how the Fed raises rates. You don't decide global economic output, profit margins, exchange rates or inflation. You don't get to control how other investors around the world feel about the future or what they think next year's earnings will be for any single company. You are, by and large, at the whim of the markets. Sorry. You get to control how you respond to each of these events. You can make rational or panicked decisions. Count the short list of things you can control and let go of the rest.
- Nothing ever really changes. Markets are made up of people, and despite our best efforts to understand ourselves, we haven't ever changed. We are given to manias and panics, to speculation and greed. We think that what just happened is going to be what happens forever, despite decades of history that shows us otherwise. Markets cycle and economies cycle and that isn't going to change.
- You can endure this (or you won't). This is Aurelius's version of "this too shall pass". Whatever is going on in the markets, the economy, the world, we'll either come out the other side, or we won't and it's all over anyway. These are your two outcomes: the economy and markets recover from the next big thing, or they don't.
- Be indifferent to what makes no difference. This is the best advice any investor can receive. It is simply too easy to get information. Company earnings, revenue projections, economic data, inflation, Fed meeting minutes, opinion polls, name your poison. There is enough data to assemble any conceivable narrative. Bearish? You can support it. Valuations, earnings declines, too-high profit margins, a long-in-the-tooth bull market cycle. Bullish? Sure! Wages are going up, inflation is subdued, interest rates are still low, consumers are feeling good, unemployment is low etc. Whatever you want, you can find it. Of course, none of these things make any difference to you as an investor. This information is interesting, but it's not actionable. It makes no difference. Be indifferent.