Note: If you have been following along you will notice this article is next to identical to the recent Brexit article and every time there is any other kind of ‘crisis or controversy’ I will post a very similar article again. There is a purposeful reason for this: To remind me to have the same response to a ‘crisis’ every time.
There always has been and there always will be something new to worry about in financial markets, the South Sea Bubble, Tulip Bubble, Post-Napoleonic depression, Panic of 1857, Australian Banking Crises of 1893, Great Depression, OPEC Shock, Latin American Debt Crisis, Japanese Asset Bubble, Black Monday, Finnish Banking Crisis, Dot com bubble, GFC, European Sovereign Debt Crisis, Commodity Crash, Oil Crisis, China Crash, Brexit, Trump… and who knows what next. Whatever it is the media need to make headlines, so no doubt you will hear all about it and in much depth.
I think there are definitely lessons to be learnt from the cause and affect of headline events, but I don’t believe there is usually any direct action to take. However, there are often opportunities to be made the most of.
“Never let a good crisis go to waste.” – Winston Churchill (maybe.)
Why I tend not to get worried
For the last 200,000 years or so we humans have constantly been striving to improve our lot. From fire, to the wheel, to paper, bronze, steel, electricity and wifi we are always reaching for the next thing to potentially improve our lives. It’s in our DNA and I can’t see us stopping this anytime soon. If you think we are running out of new fields to expand into, we are not, we are only just beginning. We can not help ourselves, we will end up mining, industrialising and colonising space and that is a massive step. The abundance of space relatively dwarfs ‘Columbus’ New World.’
When you step back and look at the world and the human experience of it from this perspective you quickly realise any panic, depression, crisis or bubble is just a tiny blip on the radar that won’t put us off course over the long run.
Stop, Breathe, Assess
Being a human makes it difficult when it comes to stepping back and making objective judgements. As Dan Airley’s book states, we are ‘Predictably Irrational‘ by nature. It takes discipline and even engineered steps to avoid succumbing to our own irrationalities. To help with this I use a handful of rules and practices:
- I use a Checklist to confirm my investment decisions before I make them.
- I tend to very rarely look at a companies price charts over anything less than a 10 year time frame.
- I don’t make investments based on macro-economic observations, only fundamental analysis of individual companies.
- I avoid putting myself in positions where I may be forced to sell an investment at any inopportune time. eg. From using too much debt which could trigger a margin call.
- I don’t check my portfolio companies share prices from minute to minute. I focus instead on company announcements and business fundamentals.
- I only pay attention to commentary from certain investors that I trust, rather than media commentators that are under pressure to increase ratings. Some examples are: Warren Buffett, Howard Marks, Steve Johnson & Kerr Neilson
What I do
As opposed to trying to make fast decisions at the drop of any news event, I:
- Continually try to stay up to date with the underlying businesses of a small group of companies I keep on my Watchlists.
- Have a rough start-to-buy price calculated with a margin for error built in for each of the companies I am interested in.
- Have this price triggered as an email and sms alert. If there is no alert, I take no action.
- Read and try to continually expand my understanding of the world and the companies I have an interest in.
What I have done due to Trump
Yesterday during the original panic that swept over the world and the world’s share markets that ‘Trump might actually be President’, one of my Portfolio companies dropped back down briefly to about what I originally paid for it. Though I wasn’t planning to make another purchase at that price myself (I have my next buy in price set at about 10% cheaper, which I am afraid the market did not reach), I did manage to make an original purchase of that company for my girlfriend’s portfolio.
Last night I also set up two further buys for two potential new holdings I have been watching closely in the chance that the market may continue it’s pessimistic swing down, but alas the market changed their tune and are, for today anyway, now optimistic about Trump as President.
I was hoping the market would continue it’s track downward so I could buy further into that one holding and also purchase into one or two new companies, however I’ll have to keep sitting tight. There is always going to be a next time…
If you have any insight, comment or feedback you’d like to share feel free to below…
Enjoy the ride!