MARKET COMMENTARY: Third QTR - Behavioural Finance and Influences in the World Around Us
November 19th, 2015
When you think of the last few times you “Googled” something, you probably did not scroll to page two of the Google search. At least 90 percent of the time, nobody looks there. In fact, about half of our clicks are bestowed on the first two hits we see.
The serious implication behind those statistics is that it remains as easy as ever to be overly influenced by what others have decided should be the most important information we receive. Behavioral finance has identified any number of ways we tend to give too much weight to just these sorts of hits that popular curators feed us. The results can tempt us into believing that leading financial news – the Chinese economy, global oil prices, interest rates, and so on – should be the driving force behind our next market moves.
We’re here to remind you: If it’s headline news, it’s already been incorporated into market pricing. Even if we could predict the outcomes (we can’t) it’s too late to act on them – so you shouldn’t. Instead, consider the following observations related to the recent market correction. While perhaps less splashy, they are far more important to your enduring financial interests.
• An Associated Press writer shared this comment: “A wild move in the market one week ‘is not like seeing a unicorn,’ [Vanguard principal Fran] Kinniry said. ‘Stocks are volatile. But you’re not investing for one day or one week, you’re investing for 10 or 20 years.’”
• Seeing how often investors abandon their plans during financial crises, David Andrew of Australian-based Capital Partners commented, “Short of tearing up twenty dollar bills and throwing them away, I can’t think of a more destructive wealth management strategy.”
• Forbes’ “Tax Girl” Kelly Phillips Erb reminds us that a market drop need not represent a personal loss: “Even if you were to sell your stock today, just because it was worth less this morning than when you went to bed last night, doesn’t necessarily mean you’ll have a realized loss.”
These pieces of advice and many others we could share made good sense earlier in the year. They make good sense today. The evidence is strong that they will continue to make good sense tomorrow, regardless of what is breaking on the Internet. Our disciplined approach of rebalancing asset class investments as they increase and decrease relative to each other has proven to be a great long- term investment strategy. As always, if we can answer any additional questions about your own portfolio or the latest financial news, please contact us.