World news has never been more on tap. We all connect to news, social and other online media throughout the day. By and large this is a positive thing; however, newspapers and websites fight to attract readers and use tactics triggering strong emotional responses to get the traffic they need. Fear and greed are the main investment-related emotions targeted.
With a barrage of negative news, most recently about the coronavirus COVID-19, it is easy to focus on the short-term market movements and not the long-term reality. Right now, we need to remind ourselves that world and health events are always happening. Indeed, over the last 20 years there have been many events that may have left us feeling very uneasy. During worrisome periods it is useful to look to the past to ease our concerns.
We know that the past doesn’t necessarily repeat itself, but it does demonstrate just how resilient the markets have been. Specifically, the below chart confirms that, despite major world events, markets do rise over time and do reward the patient and disciplined investor.
Data source: Morningstar Direct © All rights reserved. MSCI ACWI NR USD in GBP (developed and emerging markets)
Broadly speaking, the markets are efficient, meaning that all known information about anything (world events, corporate news and investors’ views) are already factored into all share prices. As difficult as it can be, we need to look beyond short-term concerns and focus on the long-term reality. Well diversified evidence-based portfolios are robust and will weather this storm. We don’t know what the coming weeks will bring, the outlook may become gloomier or brighter. Nobody knows, but we do know that we can’t time the markets.
Every year, over 1 billion people worldwide catch the flu and we daily face any number of higher risk factors from driving to cycling. Each day that you face significant risk, remember:
“Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of ebullience and the depth of despair alike that this too shall pass.” John C. Bogle.