We all know what is happening in Ukraine as I write this.
Whilst I will not comment on geopolitical events, it is necessary to provide an update on the state of the equity markets and provide some generic commentary on how to navigate the current climate within our long-term investing strategy.
In times of crisis, commentators appear from all sides. The loudest and most controversial views will garner the most attention. However, the reality remains that it is extremely difficult to forecast geopolitical events. The important truth (that I will repeat until I am blue in the face) is that the markets are forward looking indicators, and all bad news that reaches us via the mainstream media is already priced in.
The markets may behave irrationally in times of crisis, with wild swings back and forth often fuelled by emotional trading as the information is processed by market actors. This brings opportunities for arbitrage, but only for those brave enough to act with informed conviction. Equally, many investors may look to “buy the dip” – although timing such a move is often problematic.
In my financial planning practice, our investment strategy has always been consistent – we invest on the basis of fundamentals and measure our performance by long term sustainable growth (and not short-term event-driven swings). After discounting the current short-term volatility driven by Covid-19 economic fallout, transitory inflation and geopolitical unrest, we remain convinced that continued global economic recovery and growth will be the narrative for the coming business cycle.
Should we adapt our long-term investing strategy?
Given the current situation we do not see any reason to change course. As counterintuitive as it may sound, a strategy of “maintain” is often prudent in uncertain times such as these. History suggests it is seldom a good idea to drastically change an investment approach in the wake of a major exogenous shock. We believe this time is no different.
Our thoughts are with all those involved in the ongoing situation inside Ukraine.
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