Investing is not a competition. Investing is not even a skill. It’s a discipline.
Investing is not a competition. Investing is not even a skill. It’s a discipline.
As we roll ever closer to that time of year when many of us will be hosting family and loved ones, our minds turn into lists.
Festive gifts, who’s arriving when, items we need to get in that last stock-up shop before the big day (if you’re the kind tobrave supermarkets this close to C-Day), and of course; some kind of run sheet for preparing the feast.
Cooking for a crowd is all about timing, to get everything on the table as it should be.
Investing, however – not so much. While both involve planning and timing, markets should never be part of your investment philosophy.
Evidence shows us that only the very lucky ones succeed when betting the farm on market activity; many more investors can find success in a long-term approach where fluctuations are allowed for over time (with the understanding that, while markets will move, neither man nor machine is able to consistently predict how or when).
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Investment opportunities exist all around the globe, but the randomness of global stock returns makes it exceedingly difficult to figure out which markets are likely to be outperformers. How should investors deal with this kind of uncertainty?
First, they should remember that it’s challenging, at best, to predict a country’s returns by looking at the past.
For example
New Zealand posted the highest developed markets return in 2019, but the lowest in 2021.
The US ranked the top five for annualised returns over the entire 20 years but finished first in the country rankings just once over that period. In nine calendar years, it was in the lower half of performers.
Diversification is your buddy when it comes to investment. That means crossing industries, countries and asset classes.
‘Hot’ stocks are usually not golden tickets to fabulous wealth. Their demand can make them more expensive to buy into, and there is little reason to expect one particular stock offering to do better than another simply because of the logo attached.
Trendy shoe brand Allbirds saw a rough drop this year, falling from US$3.06 in March to $0.67 at its lowest in November. Notorious meme stock GameStop has been on a (more or less) steady decline since Reddit users artificially inflated the price to US$81.25 in 2021, now sitting at $16.69 at time of publication.
Closer to home, My Food Bag’s stock has also been declining – the five-year trend goes from NZ$1.74 to a mere $0.12 today.
Investors can benefit from understanding that they don’t need to predict which countries will deliver the best returns during the next quarter, next year, or next five years. Why? Holding equities from markets around the world — as opposed to those of a few countries or just one — positions investors to potentially capture higher returns where they appear, and outperformance in one market can help offset lower returns elsewhere. Put another way, a globally diversified portfolio can help provide more reliable outcomes over time.
Investing is not a competition. Investing is not even a skill. It’s a discipline. This is revealed with the passing of time, not short-term spurts of speculation. Guessing the market daily gives you no better odds than flipping a coin. On a monthly basis, 63 per cent are positive. On a 12-month basis, 75 per cent are positive. One a five-year basis, 88 per cent are positive, 95 per cent of 10-year periods and 100 per cent of 20-year periods.
While many hands make light work, there is also the argument that too many cooks will spoil the broth – so it’s best to work with the experts when it comes to making your financial plan, rather than crowd-sourcing ‘sure things’ to sink your hard-earned money into. A trusted, local fiduciary will do the heavy lifting for you so you can spend your valuable time where it really matters, instead of trying to chase stock movements.
If you’re looking for a hand with that Christmas dinner, though ... you can make your own judgment call on whether you trust the rellies for that!
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 335.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
