Chronos Private

Living With Uncertainty

Now seems like an appropriate time to reflect on what was happening in the world exactly 12 months ago.  The COVID-19 virus was spreading and people around the world were starting to realise the severity of what was going on around them. 

But before we dissect that some more, let us take a look at what the ‘experts’ were saying in January 2020:

Let me be clear, this is not a blog designed to criticise the experts.  They are just doing their job and to be fair they could’ve been right about these predictions.  But that’s the point, nobody really knows what the future holds and obviously nobody predicted a Pandemic.

By the 23rd March 2020 the ASX was down circa 37% and it felt like the world was going to end.  But it didn’t.  Fast forward 9 months and by December 2020 global stock markets were hovering around record highs again.  We now have multiple vaccines being administered around the world and things are looking up, even though this time last year they weren’t.

For the sake of this discussion, let’s pretend you decided to sell your portfolio to cash in the 1st week of March as you felt like things were going to get worse before they got better.  You were right, as the bottom of the market was around the 23rd March 2020. 

If you’re honest to yourself, think about how you were feeling in early March 2020 and how realistic would it be that you would’ve reinvested again on or around the 23rd of the month?  It just wouldn’t have happened.  You would’ve waited until it felt safe to ‘get back in’ but sadly it would’ve been too late as the market recovered hard and fast.  By the end of April the market was back up about 20% – if you’re lucky that’s all you would’ve missed out on.

Timing the market is hard.  It involves two independent, correct decisions – when to sell and when to buy.  There is no secret formula to predict this.  And those in the media certainly aren’t interested in your portfolio, they are interested in causing fear and maximising advertising revenue.  It’s that simple.

Sticking to a long-term plan is always the best way to navigate choppy waters like we’ve seen over the past 12 months.  Yes, it’s boring.  But investing isn’t meant to be entertainment.  If you want to ‘have some fun’ with your investments then do it with whatever amount you’re willing to lose, not with your life savings. 

If you stay the course and take emotion out of your investment decisions you will be rewarded with good, long term returns.  Take the S&P/ASX 300 for example – since 1980 the average annual return in Australia has been 13%.  Not bad, right?  You may be surprised to see how uncommon it is though for investors to actually earn the ‘average’ return year on year.  Check this out:

So what can you do to be a successful investor?  For starters, moderate your media diet.  Don’t get sucked in to all the doom and gloom which comes and goes quicker than a good night’s sleep.  The flow of news moves at lightning speed nowadays and what was a big story today will be forgotten by tomorrow.

On top of that, focus on what you need and not what’s being sold.  Again, if we take COVID-19 as an example, look at some of the things that have been ‘sold’ over the past 12 months vs what you need.  This translates well into investing:

Everything seems easy in hindsight and as human beings we are very quick to forget the lessons we learnt only a few years ago – take the GFC as another recent example.  If you’ve read any of my other blogs, either on this website or elsewhere on the world wide web, you’d know that this is a message I’ve been passionate about for a very long time. 

Will it be different this time?  Yes, it’s always different.  Today it was a Pandemic, next time it could be literally anything.  But the what doesn’t matter as much as the how; how you react is the key.