Investment news for you
The Jurgens Group thoroughly enjoyed attending our Annual Conference, something we sorely missed after the last two years of COVID.
A message from Mark Jurgens:
2022 has certainly started more intensely than any of us expected.
Expectations of a Covid free life were replaced with the
Russian/Ukraine unrest.
In response to many concerns being voiced recently, I thought it opportune to begin with the benefits of managing behavioural finance. Emotions, moods, relationships, and personalities affect us all. Sometimes for positive reasons, and sometimes to our detriment.
Part of an advisor’s job is to help you plan for your future. This involves finances, residences, employment, family, and retirement, amongst other individual requirements.
This year, our newsletter will carry a four-part series in which I will be discussing “Behavioural Finance.” Clients often forget about why certain plans have been initiated and begin discussing new ideas. In most instances, moving away from structured plans results in the long-term objectives not being achieved. Once plans have been actioned, they need to remain enforced.
Advisors are there to remind investors of the implemented plans and why they were agreed upon. Volatility (market crashes, war, cool unrest, pandemics, calamities) create anxiety and fear of loss. History has shown that making sudden changes in volatile times normally result in additional losses.
An advisor is there to assist in creating a stable environment, avoiding knee jerk reactions and to discuss and ensure the correct decisions are maintained. March 2020 is a good example, whereby investors panicked only to see the markets fully recover (with additional profits) over a period of eight to nine months.
We all make better decisions when discussing, debating, and sharing them with a trusted person.
“Herd Investing” is a common behavioural finance flaw. It relates to investors believing a large group of people in a certain product must have done the necessary research and this therefore proves the environment must be ethical and profitable. Bernie Madoff, the US hedge fund manager, created embarrassing experiences for many so-called professional investors due to a herding approach.
One could say that trusted financial advisors should be considered “a partner who ensures I make the correct decisions and avoid impulsive, un-calculated decisions.” “Herd Investing” is a common behavioural finance flaw. It relates to investors believing a large group of people in a certain product must have done the necessary research and this therefore proves the environment must be ethical and profitable. Bernie Madoff, the US hedge fund manager, created embarrassing experiences for many so-called professional investors due to a herding approach. An advisor is there to assist in creating a stable environment, avoiding knee jerk reactions and to discuss and ensure the correct decisions are maintained. March 2020 is a good example, whereby investors panicked only to see the markets fully recover (with additional profits) over a period of eight to nine months. I believe it takes time and experience to be in a position to apply the above qualities. Although these points are infrequently discussed, they are probably the most important skills required in a financial advisor.
I have personally assisted investors over the last six weeks with regards to appropriate behaviour during the current unstable climate. Do not ever feel any financial uncertainty is too small to discuss.
Stay well and regards,
In response to many concerns being voiced recently, I thought it opportune to begin with the benefits of managing behavioural finance. Emotions, moods, relationships, and personalities affect us all. Sometimes for positive reasons, and sometimes to our detriment.
Part of an advisor’s job is to help you plan for your future. This involves finances, residences, employment, family, and retirement, amongst other individual requirements.
This year, our newsletter will carry a four-part series in which I will be discussing “Behavioural Finance.” Clients often forget about why certain plans have been initiated and begin discussing new ideas. In most instances, moving away from structured plans results in the long-term objectives not being achieved. Once plans have been actioned, they need to remain enforced.
Advisors are there to remind investors of the implemented plans and why they were agreed upon. Volatility (market crashes, war, cool unrest, pandemics, calamities) create anxiety and fear of loss. History has shown that making sudden changes in volatile times normally result in additional losses.
An advisor is there to assist in creating a stable environment, avoiding knee jerk reactions and to discuss and ensure the correct decisions are maintained. March 2020 is a good example, whereby investors panicked only to see the markets fully recover (with additional profits) over a period of eight to nine months.
We all make better decisions when discussing, debating, and sharing them with a trusted person.
“Herd Investing” is a common behavioural finance flaw. It relates to investors believing a large group of people in a certain product must have done the necessary research and this therefore proves the environment must be ethical and profitable. Bernie Madoff, the US hedge fund manager, created embarrassing experiences for many so-called professional investors due to a herding approach.
One could say that trusted financial advisors should be considered “a partner who ensures I make the correct decisions and avoid impulsive, un-calculated decisions.” “Herd Investing” is a common behavioural finance flaw. It relates to investors believing a large group of people in a certain product must have done the necessary research and this therefore proves the environment must be ethical and profitable. Bernie Madoff, the US hedge fund manager, created embarrassing experiences for many so-called professional investors due to a herding approach. An advisor is there to assist in creating a stable environment, avoiding knee jerk reactions and to discuss and ensure the correct decisions are maintained. March 2020 is a good example, whereby investors panicked only to see the markets fully recover (with additional profits) over a period of eight to nine months. I believe it takes time and experience to be in a position to apply the above qualities. Although these points are infrequently discussed, they are probably the most important skills required in a financial advisor.
I have personally assisted investors over the last six weeks with regards to appropriate behaviour during the current unstable climate. Do not ever feel any financial uncertainty is too small to discuss.
Stay well and regards,
Mark Jurgens
‘Addressing current market volatility', from Alan Botha
When events like the war in Ukraine, the rand weakening, oil rising to
more than $120 a barrel, unusually high inflation and market volatility
dominate the news, it is natural for investors to question and second guess
their investment strategy.
To say that the start of 2022 has been volatile would be somewhat of an understatement. In recent weeks, markets have been tossed back and forth by speculative headlines regarding the potential for Russia to invade Ukraine. The potential invasion has become a reality with Russia launching their troops into pro-Russian regions in Ukraine. This has led to the S&P 500 falling into a correction for the first time in two years, joining the Nasdaq Composite. (A correction is defined as a drop of more than 10% but not more than 20%.) Events like these may not be new, however, the volatility and uncertainty it causes does not make it any easier for investors to deal with. How should investors best attempt to manage geopolitical risks in portfolios?
• The first is predicting and gambling, where investors try to predict the outcome of the event and then guess the impact it will have on the market. If done correctly it could make them seem like a market master, but often investors, and most market participants, get it terribly wrong.
• The second is the flight instinct, when faced with market volatility heading.” Well, that is nice. Now comes the test. Given the recent risks would have on the intrinsic value of investment markets which requires a rational framework and immense discipline. and panic, some investors prefer to sit out and wait, i.e., move to cash or what is deemed safe-haven assets (like gold). The problem is that the opportunity cost of not being invested in the market could be large
• The third is remembering valuation and the impact that geopolitical risks would have on the intrinsic value of investment markets which requires a rational framework and immense discipline.
• The fourth and most important is holding tight and focussing on the long term. Most of us know long term is the right strategy when it comes to careers, relationships – or anything that compounds. But saying “I’m in it for the long run” is a bit like standing at the base of Mount Everest, pointing to the top, and saying, “That’s where I’m heading.” Well, that is nice. Now comes the test. Given the recent and expected continuation of market volatility throughout 2022, what lesson can we remember when we are trying to think and act long term?
The long run is just a collection of short runs you must put up with. Long-term thinking can, to some extent, be a deceptive safety blanket that investors assume allows them to bypass the painful and unpredictable short run. Unfortunately, this is very rarely the case, it might be quite the opposite – the reality is that part of long-term investing is dealing with short term pain, and you will need to embrace downturns throughout your investing journey. Annual return and drawdown data of the S&P 500 show that – although over the last 42 years we only ended up with an annual negative performance in nine out of the 42 years – every single year (in the 42 years) had a drawdown or temporary setback in the market, and each of those for vastly different reasons.
As we move through this latest period of market volatility, we continue with our investment partner Morningstar Investment Management’s 90-strong investment team to continue to prioritise research by not overreacting to current events. Our managed portfolios are well diversified across multiple asset classes and different sectors of the market and portfolios will be protected from the extreme volatility in many parts, while exploring any opportunities which may emerge.
Alongside this, the portfolio managers are continually evaluating the portfolios by simulating different scenarios to ensure that they remain robust to a broad range of potential economic outcomes rather than simply those that dominate the headlines today.We encourage our clients to take the approach of navigating this unknown territory, by focusing on the longer term, knowing that ”this too shall pass”.
To say that the start of 2022 has been volatile would be somewhat of an understatement. In recent weeks, markets have been tossed back and forth by speculative headlines regarding the potential for Russia to invade Ukraine. The potential invasion has become a reality with Russia launching their troops into pro-Russian regions in Ukraine. This has led to the S&P 500 falling into a correction for the first time in two years, joining the Nasdaq Composite. (A correction is defined as a drop of more than 10% but not more than 20%.) Events like these may not be new, however, the volatility and uncertainty it causes does not make it any easier for investors to deal with. How should investors best attempt to manage geopolitical risks in portfolios?
• The first is predicting and gambling, where investors try to predict the outcome of the event and then guess the impact it will have on the market. If done correctly it could make them seem like a market master, but often investors, and most market participants, get it terribly wrong.
• The second is the flight instinct, when faced with market volatility heading.” Well, that is nice. Now comes the test. Given the recent risks would have on the intrinsic value of investment markets which requires a rational framework and immense discipline. and panic, some investors prefer to sit out and wait, i.e., move to cash or what is deemed safe-haven assets (like gold). The problem is that the opportunity cost of not being invested in the market could be large
• The third is remembering valuation and the impact that geopolitical risks would have on the intrinsic value of investment markets which requires a rational framework and immense discipline.
• The fourth and most important is holding tight and focussing on the long term. Most of us know long term is the right strategy when it comes to careers, relationships – or anything that compounds. But saying “I’m in it for the long run” is a bit like standing at the base of Mount Everest, pointing to the top, and saying, “That’s where I’m heading.” Well, that is nice. Now comes the test. Given the recent and expected continuation of market volatility throughout 2022, what lesson can we remember when we are trying to think and act long term?
The long run is just a collection of short runs you must put up with. Long-term thinking can, to some extent, be a deceptive safety blanket that investors assume allows them to bypass the painful and unpredictable short run. Unfortunately, this is very rarely the case, it might be quite the opposite – the reality is that part of long-term investing is dealing with short term pain, and you will need to embrace downturns throughout your investing journey. Annual return and drawdown data of the S&P 500 show that – although over the last 42 years we only ended up with an annual negative performance in nine out of the 42 years – every single year (in the 42 years) had a drawdown or temporary setback in the market, and each of those for vastly different reasons.
As we move through this latest period of market volatility, we continue with our investment partner Morningstar Investment Management’s 90-strong investment team to continue to prioritise research by not overreacting to current events. Our managed portfolios are well diversified across multiple asset classes and different sectors of the market and portfolios will be protected from the extreme volatility in many parts, while exploring any opportunities which may emerge.
Alongside this, the portfolio managers are continually evaluating the portfolios by simulating different scenarios to ensure that they remain robust to a broad range of potential economic outcomes rather than simply those that dominate the headlines today.We encourage our clients to take the approach of navigating this unknown territory, by focusing on the longer term, knowing that ”this too shall pass”.
