Avon Barksdale: A lot of things are different since you been up in here, you’ll see –.
Dennis “Cutty” Wise: A lot of changes.
Avon Barksdale: Yeah… no doubt. But, yeah, you know, some things stayed the same, man. I mean, the game is the game.
The Wire, Season 3, Episode 1
I broke my recent “newsfast” with this bracing headline in the FT Weekend:
Wow. On the face of it, perfectly capturing my complaint in autumn that too much of the news is a diet of crisis and catastrophe.
But let’s be fair to the FT. I picked their last edition of the year to break my fast and it was reasonable for them to include a headline which looked back at the whole year – and the headline, while certainly arresting, was not, in fact, hyperbolic.
(Got me thinking. Could I reduce my news consumption permanently to once per year? What would that feel like? To be explored…!)
It was a pithy and factual summary of what happened in equity and bond markets, actually. Unusually in recent times, both asset classes suffered double-digit percentage falls. According to one expert quoted in the article, this represents a “game-changer for investors”.
I could not disagree more. If you are investing in public markets and the “game” doesn’t allow for occasional 20% or 30% down years, then you are playing the wrong game, in my view!
This kind of fall happens. I won’t get into why predicting how or when it will happen is futile and costly.
The key questions are, simply:
1. What happens to your portfolio when these kinds of falls happen – and is it in line with what you expected and prepared for?
2. What happens to you when these kinds of falls happen – and is your psychological response in line with what you expected and prepared for?
I recall being asked in March 2020, as the Covid pandemic kicked off and markets were in meltdown, “at what point do you say to clients, ‘ok, it’s time to change your investment strategy…’ Does that day ever come? Realistically what needs to happen to trigger that response?”
It may not sound like it, but the question goes to the very heart of what we think intelligent long-term investing should be about. I responded from that place:
“The strategy should have accounted for emotional and paper wealth effects of normal market behaviour - 20% or 30% market moves at some point in the journey. Strategy changes when client circumstances change, not when the market changes.”
It’s been nearly three years since I wrote that – and God knows there have been a dozen or more furious challenges to anyone’s stance on investing since then. I’m proud to say that on every occasion I’ve been happy to stand behind this 100%. The game is still the game.
FS