We have already reached the time of year when many New Year’s resolutions have already been broken. However, one resolution that you should have had and should now be a habit is to be a better investor. And that means learning to hold your nerve.
Moving forward you want to continue to ignore, as hard as it may be, political and economic forecasts, which are often an expensive distraction for many investors and business owners.
Imagine if you had been told in 2020, that there would be a pandemic and that the measures taken to contain it would affect the world economy that US GDP would fall by 9% in the second quarter of the year and the hospitality and travel sectors would be devastated by the measures as would large segments of traditional retail activity. Considering this would you have predicted that the MSCI World Index would deliver a return of 12.3% at the end of 2020, slightly above its ten-year average?
As a bit of a history buff, over 65 years ago no one would have foreseen the huge expansion of what happened after the Vietnam War, wage and price controls, oil shocks, the resignation of presidents, the dissolution of the Soviet Union, a one -day drop in the Dow Jones of 508 points or treasury bills collapsing to what they currently are at almost 0%, but surprisingly none of these blockbuster events made the slightest dent to investment portfolios, which stayed the course nor did they render unsound the negotiated purchases of fine businesses at sensible prices.
Imagine the cost to your portfolio, if you had let a fear of unknown cause defer or alter the deployment of capital. Mostly, the best purchases are when apprehensions about some macro event are at their peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
Hopefully, this illustrates the dangers of forecasting and market timing, even when you know what major events will occur. In a conversation with the well-known fund manager Terry Smith, he left us with the thought …
‘upon what are the similarities between a forecaster and a one-eyed javelin thrower?’
Answer: Neither is likely to be very accurate but they are typically good at keeping the attention of the audience.