Stock markets around the world continue to be roiled by investor anxiety over the state of the U.S. and world economy, corporate earnings, the price of oil, and the intentions of the Federal Reserve and other central banks.
This is not new stuff, of course, investors are always looking for something to worry about and they can usually find it.
So how do we navigate this inevitable reality? We believe it requires us to embrace four fundamental truths and three simple rules.
The fundamental truths are derived from the worldview that we described a few weeks ago and consist of the following:
- Human beings are fundamentally growth-seeking and resilient, as a consequence of which
- The U.S. and world economy are ultimately resilient and biased toward growth, thus
- The stock market, which represents ownership of the productive assets of the economy, is biased toward growth over the long run.
- Finally, the workings of the economy and markets are too complex and chaotic for short-term prediction.
If those four fundamental propositions are true, then there are three simple rules that allow us to harness them:
- Invest for the long-run in a broadly diversified, global portfolio.
- Make sure you have enough reserves to weather a downturn.
- Ignore the headlines.
The first two bullets are exactly how we invest, including the provision of a six to seven year “stable reserve” in each portfolio that allows clients to bridge a market downturn without having to lock in any losses. And we think the third rule is good advice under all circumstances, not just when investing.
Some will suggest that this is too simplistic but there’s power in simplicity. Those who believe you have to react to every fresh bit of news and every new round of volatility are like those who think you can control the weather with a rain dance.
In the end, it’s better to be resilient than nimble, and there’s power in simplicity.