Everyday when we open the business news channel we are faced with the news reporter who says why the world will be great place or a lousy place due to some happening in some part of the world. In the business context we also believe these will impact the stock markets positively or negatively.
Numerous studies involving experts and novices who made short term predictions, have proven that the experts are no better than random novices in getting the odds of their predictions play out. Yet we attach the greatest importance to their predictions in the short term.
Harvard Economist John Kenneth Galbraith says “there are only two types of forecasters; those who don’t know, and those who don’t know that they don’t know”.
Yet we live in a world that everyone from the news reporter to the fund manager to the investment advisors to the investors spend inordinate amount of time trying to predict something that they do not have control over at all.
So how do we solve the problem, what we have found is that most people who have to predict in the absence of real information or knowledge would just predict the worst case scenario, something like “this would get a lot worse before it gets better”, esp about the current stock market. The reason being is that if I predicted the worst case scenario and it did not happen, you would be happy just for the fact that the worst case didn’t play out, if on the contrary it did play out , I am the expert. So there is a leaning that I have found forecasters have towards playing it safe while predicting the future,esp near term i.e to be extremely negative.
So how can investors navigate through this fog.
Stay true to your long term asset allocation, as long as your long term needs haven’t changed. Short term will remain volatile but will sort itself out In the long term.
Limit your short term expectation, if you expect supra normal returns in the short term, you are bound to be disappointed, if your expectations are low about the short term, then stay invested because you believe in the long term, you are sure to be in a better frame of mind.
Especially in this pandemic, if you are conservative investor your philosophy should be “ not to incur loss, rather than make profits”, if you follow this as the credo, you should be okay.
Believe me nobody has a clue about when the vaccine will be ready or when the world economy will return to normal or who the next president of USA will be or will the trade war between China – US increase or decrease in the next few months. But if you let any of these news flow impact your investment expectations then you are unnecessarily beating yourself up.
Stay the course on your investment philosophy and asset allocation, the long term future is always better than what the short term negativity that people have predicted for us.
So if you must keep the television on, keep it Muted and if you still subscribe to a newspaper, definitely don’t read it.. believe me you would find greater peace of mind and it will be more profitable as well.
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