MARKETS are imploding. Unprepared investors are panicking. Stress levels are soaring.
Countless speculators and traders stare at screens worldwide feeling terrified and despondent!
If that group includes you, here’s a suggestion:
During the four or five minutes you’ll need to read this column, grant yourself permission to proactively shift your gaze from the barrage of doom and gloom we all read in the press and choose to be happy.
It will make you richer.
We all know there are times when markets are good and there are times when markets are bad.
What too few of us realise, though, is that markets are always “good” and “bad” at the same time.
If markets are high and seem toppish, they are good for sellers of investment assets but bad for the buyers. If markets are low, perhaps even rock-bottom, they are great for buyers but lousy for sellers.
This isn’t rocket science!
It is easy for most thoughtful, intelligent adults to understand why what I have described is both logical and true.
However, there is a visceral aspect of investing which often results in speculators and traders doing the wrong thing.
As I wrote 16 years ago in one of my books, Financial Freedom 2 — Through Malaysian Equities and Unit Trusts, published in August 2000 and co-written with my friends and Malaysian unit trust icons Edmond Cheah and Wong Boon Choy:
“Back in 1997, Arthur Zeikel, president and chief executive officer of Merrill Lynch Asset Management, noted that a study on United States mutual fund holders showed that there was a net cash inflow into mutual funds at market peaks, and — get this! — a net outflow at market troughs.
“We believe the behaviour of Malaysian investors — but more so that of direct equity holders than unit trust investors — is similar.
“Zeikel’s revelation means that, on balance, US mutual fund holders were doing precisely the wrong thing both times.”
Those who understand the psychology of investors know that Zeikel’s observation has always been a part of the human investing profile which is why I brought up this obscure reference from more than a decade and a half ago.
Bottomline: nothing has changed!
Markets rise and markets fall; and when they do, they always (always!) swing too far in each direction because of the irrational fallibility of wonderful, flawed humanity.
Today, the time intervals between those ups and downs are shorter while the magnitude of their rises and falls are larger because our human foibles are cybernetically accelerated and magnified through our trading algorithms.
What should we then do?
I believe we must retain faith in humanity’s abilities to rise above each generation’s challenges. For instance, the Nazis were defeated in 1945; today we have to believe the evil of Islamic State will be curbed.
An excessive dependence on quantitative easing (QE) has created liquidity traps around the world but we should recognise our persistent hunt for yield will cause capital to flow to productive pockets of our interconnected global economy.
We should extract comfort from understanding that our planet’s current human load of 7.3 billion people should rise to 9.6 billion in 2050, just 34 years away.
That population explosion coupled with even faster growth of the middle class will create vast business opportunities that generate huge investment profits.
The smartest way for us to harvest some of those profits is to invest across different asset classes, across various geographic regions, and to do so consistently across the timeline, which necessitates regularly allocating a large chunk of our lifetime income in investments that fluctuate in price.
The best way I know to do so is through a dollar-cost averaging (DCA) investment programme with a minimum time horizon of seven years; doing so over two, three or four decades is better.
Growing our money faster than inflation and taxes erode its value is vital to long-term personal economic health, which is why I will elaborate on DCA next week.
Happy investing!
The writer can be reached at rajen@RajenDevedason.com and via Twitter: @RajenDevadason
The writer is a Securities Commission-
licensed financial planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com. He may be connected with on LinkedIn at https://www. linkedin.com/in/rajendevadason