Nowadays, there’s enough pessimism in the investment world to sink the titanic. And then some. You might very rightfully tell me that there’s seriously so much to be worried about! And there is. Trust me, there’s no shortage.
First off: inflation is raging. While most of us are freaking out that this will turn out to be a 70s sequel, others are fearing it’ll be more like the 40s. 1940s, that is. The post-war era of whopper inflation while interest rates crucially lagged behind. Way behind.
The reason we’re probably stressing out about inflation is because we’ve a) never experienced anything quite like it b) it’s paired with low growth and c) it threatens to derail our long-held assumptions of ever low yields. Though our baby boomers could tell you a thing or two about inflation. Get chatting with your grandparents and see what they have to say on the matter!
Anyway, the fact that real yields have been low for donkey years has been great for stocks but for bonds, not quite the same story. As you’ve gathered, they’ve been a disaster to own. You’re effectively lending your money knowing full-well you’re going to get back less than you had lent out. Ouch.
We’re worried that it’s all coming to an end
Super-low bond yield made for sky-valuations. Tasty, sure. But unsustainable. But don’t worry, Mr Market is taking care of all that. Hence the recent freak-out! Or should I say obsession? Markets, and the investment community at large, are obsessed with inflation and interest rate. It’s literally all anyone’s talking about.
So much so that it’s causing some pretty unwarranted sell-offs and a whole host of fear. Which is like a paralysis-inducing drug. Or worse, causing you to click ‘sell’ when markets have already tumbled. Though you tell me more tumbles are coming, right?! (Read here what you can do to overcome this fear).
Okay, moving on!
We’ve also got stagflation – the lovely combo of low growth with high inflation which isn’t exactly a cocktail any sane person would want to drink. This makes investing tricky, or shall I say no longer handed to us on a silver platter! Read here why past performance really is no indicator for future performance and why this next decade of investing will require a lot more courage.
If this isn’t enough to digest, we’ve also got a war in the East. A war that is not ending. It’s causing devastating loss of life, losses that could have been prevented but sadly, here we are. Then, look at some of the knock-on effects it’s causing like high energy prices which is making the cost of living go through the roof. As if things weren’t bad enough to begin with.
A recession is on the table. Now what?
All this lovely stuff will most likely land us in a recession. So what? They occur every 5-7 years and we mustn’t be greedy (or naïve) to think the good times will stick around forever. Economies can’t go on like this and quite frankly nor can we (the consumer) aka the bedrock of the economy since our spending represents as much as 70% of GDP! Inflation is eating into everything and we’ve got less to spend on extras. Read here why you needn’t be so scared of recessions and what you can to prepare.
Okay, guys that’s that outa the way! That’s what we’re fretting about. But the thing is, in 10 years’ time, us (and markets) will have some other things to worry about and all this will (hopefully) be old news. But when we’re in the thick of it we get so attached to this grim, pessimistic view of the world that it can be hard to anything else, really.
But if you’re investing, surely you must have a perception that the world is (on the whole) getting better! Cause if you don’t, it’ll be so hard to hold on in times like these. And frankly, why would you want to?
Overestimate the good; underestimate the bad!
The issue is, that we read more bad news than good news. We rarely hear about the genuine amazing and awesome things that are happening all over the world. Yet beautifully good things are happening. They just aren’t broadcasted as loudly as their grim counterparts.
I firmly believe that there is what to be optimistic about. From cures to diseases and scientific breakthroughs (hello-covid vaccine!) to electrification which is revving up along with technological revolutions. These these are changing lives, and will continue to do so.
The problem is that when you open up any news app, you’re bombarded by an endless sea of nastiness and worry. From tumbling stocks, struggling companies not to mention the cost of living (which is, btw, a crisis) to the never-ending China saga. That China’s lower-than-expected growth will kill us all. So, we sell. Because we think growth is gonna be low for, well, ages!
And nothing really looks to be going well. Oh, and Bitcion! The amount of headlines shouting about how it fell 54% or whatever since its November highs. This makes people sell, sell, sell. Cause who’d wanna buy in times like these?!
Unsurprisingly, this means that we end up overestimating the bad stuff while underestimating the good sutff. In other words, we think that the chance of nasty things happening is way higher than the chance of good things!
It’s out there. You’ve just gotta look for it.
To quote Hans Rosling: “It is easy to be aware of all the bad things happening in the world. It’s harder to know about the good things: billions of improvements that are never reported…the secret silent miracle of human progress.”
And this is where the big problem lies. But we need to learn to dig a little deeper and not to simply accept things as they are. Headlines aren’t the real world. If all we read were headlines, I dare say we’d be able to invest a penny! Nor would we want to!
Investing is so much more than limiting ones downside risk. Choosing the investment with the least chance of losing money. That’s sad! That’s choosing to be ‘better safe than sorry’ but that’s not how you’ll end up with cracking returns. Returns that will give you the life you want. That financial freedom you’re all dreaming of.
Pessimism might minimise your losses, sure. But it’ll amplify your hatred for losing. You’ll be scared to lose because you see any real point in winning. You don’t see the possibility to win, at all.
Risk is not just bad. It’s the chance of things going right. It’s the opportunity of wonderful things happening for humanity. The once-in-a-lifetime companies that will, quite literally, change the world. Why wouldn’t you want to be a part of this?
This pessimism has no doubt sent major indices tumbling. Perfectly sound companies, no – innovative, life-changing companies have been left by the waste side because investors don’t really see an end to this maddening misery.
Leave it; there’s no place for that here!
Pessimism is dangerous and contagious! It forces you to walk through life with a blackened lens. And surround yourself with people who share this same view. That even when the sun is shining, all you see is darkness.
Pessimism might mean you miss out on a market crash (or two) but it also means you won’t join in the party that follows. The time of excitement, innovation, creativity and sheer wealth-building.
Investing is scary in times like these. It almost seems like whichever way you turn, you’ll be hit by a giant meteorite. It can feel as though you’re being asked to hit a bull’s eye. Blinded-folded.
But, dear readers, if it were all so easy, there’d be no returns to be had. Risk = reward. And if everyone knew what to do and when to do it, there’d be no advantage to be had. But lucky for you, we’ve got time. Time is our best friend. If you’ll let it be!
Time compounds your returns. Just don’t feel the urge to disrupt it. To pull out the roots before they’ve blossomed.
Especially when markets have already gone down enough. Resist the urge to convert your paper losses into actual ones.
On that note, find your inner optimist. And hold onto it.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.