Panic!

Man keeping calm, not in panic

The media loves a sensational headline. Royal weddings, leaders’ babies, hot summers, and financial bloodbaths.

With little else to get their teeth into, the world’s media has gone to town on the recent movement in global share markets.

Cue to the obligatory photo of the frazzled trader with his head buried in his hands. The world is crashing in around him. The horrific screeching sound of investors’ hopes and dreams plummeting into a great abyss. Life, as we know it, coming to an end.

But …. No. The grass keeps growing, builders keep putting up houses, kids go to school, petrol stations keep pumping gas, baristas keep churning out orange mocha frappuccinos.

Markets, by their very nature move up and down. The club, whose membership is populated by entitled, egomaniacs, thrives on these movements. It generates P&L and commissions. Oddly, they publicly decry volatility; but the club is responsible for creating, encouraging and perpetuating that volatility.

Share market indices are heavily traded financial instruments. Hedge funds, investment banks and other egomaniacal market manipulators use extreme leverage (borrowing) to make huge bets on the direction of an index. It’s a numbers game. Often, the movement of these indices has very little to with the underlying companies that comprise them. The actual corporate world is in almost rude health; low interest rates, increasing productivity, low wages growth, tax breaks, ever-increasing populations; all add to an environment where corporations are prospering. The Dow Jones was up almost 25% in 2017, and that’s before dividends.

Humanity has witnessed countless “crashes”, where financial asset values fall abtuptly, often for no obvious reason. Yes, there has been peripheral damage, but for the overwhelmingly most part, the world has continued to forge ahead. Just chill. After all, what’s a few trillion dollars between friends?

What better opportunity to remind NZ investors of their inherent distrust of the equity market? To see investment gains so cruelly washed away by an invisible torrent. 1987 has a lot to answer for … hoorah for bricks and mortar. The important thing to focus on, for any investment, is the long-term outcome. Ignore the sensational headlines. There will be another royal baby heat wave soon enough.

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