On Friday we saw the worst market selloff in weeks, so that evening I decided to read up on what happened during the week. The main topic was the selloff that had occurred and most articles highlighted how much money security holders lost, perhaps I don’t understand financial markets as well as those journalists but I thought that money was only ever lost when one decides to sell or when the other party to the security went under, no one went under its just paper losses!

The reason for the selloff? The articles suggested that the market thinks the Fed will eventually raise interest rates this year as well as the Europe’s Central Banks’ sudden unwillingness to further stimulate the economy, some even suggested that the market is discounting in a Trump win hahaha. 

I realised one thing after reading these articles. markets are dominated by top down investors (all those investors will vehemently dismiss that), investors are not concerned about the individual assets they own, rather they are trying to move from asset class to class based on their “superior” judgement of how macro economic factors will effect industries, just thinking about that kind of behaviour makes me tired. 

At the end of the day, very few things are determinative but we can certainly rely on the fact that there will be cycles, the good times don’t go on forever, nor do the bad times. In the long run however, investors with a long term orientation will fair alright as long as they own good quality assets, stay the course and do not attempt the tedious task of market timing by moving from asset class to asset class.

I will leave you with a quote from the late Amos Tversky (he was a cognitive psychologist and good friend of Daniel Kahneman);  “it’s frightening to think that you don’t know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what going on”. If the market movers could comprehend this, their actions would not be governed by decision made by the central bankers who suffer from imperfect understanding just like the rest of us.

Stay calm, see the selloffs as an opportunity rather than a curse, stay the course.


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