11 June 2019
By Jim Roberts, Chairman Verbatim Investment Committee
Imagine a life without uncertainty. A life when we know from the day we’re born the day we’ll die, and the days our parents, brothers, sisters, friends will die. Where the results of football games, horse races, golf tournaments were known in advance. Where our place in society was predestined, and there would be nothing we could do about it. To me, that sounds pretty miserable. Not life, but existence.
In the investment world, risk is also what makes life worth living. Without risk in investments, the returns on everything would be known; every investment would be, effectively, equivalent; there would be no risk premium, no incentive to innovation. So over the long term, we are better off investing in risky assets. That’s understood by most of us.
However, when people get nervous, primitive instincts take over, and they run for cover. Because of Brexit chaos, Trump, talk of trade wars, and relentless hysterical hyperbole of the average journalist, such a feeling is definitely growing. The world is going to hell in a handcart!
Political uncertainty is undeniable, but the fact is that there is no significant correlation between political uncertainty and stock market performance. So fleeing to cash undermines long-term performance by removing the benefit of the higher returns of equities for as long as the money stays in cash. This is further compounded by the fact that, having left the market, a reluctance to return develops. Is it too soon? Has the political situation stabilised? The fact is, we don’t know. Nobody does.
Decision aversion caused by the anticipation of decision regret is paralysing. Allowing emotion to drive investment decisions will almost always have a negative impact, and undermines the mathematics of portfolio planning. Our financial plans are put together according to sound analysis and principles. To jettison it on the basis of what amounts to a hunch is unwise.
For this reason, the Verbatim investment solutions are designed to protect our clients, whatever future market developments may bring. We are ideally positioned to provide you and your clients’ with consistent and reliable investment solutions that you can count on to consistently meet expectations.
The value of investments and any income from them can go down as well as up and is not guaranteed. Your clients could get back less than they originally invested. Past performance is not a guide to future performance. The portfolios' investments are subject to normal fluctuations and other risks inherent when investing in securities. Verbatim Asset Management has taken due care and attention in preparing this document, which is solely for the use of professional advisers. Verbatim cannot be held responsible for any inaccuracies arising out of information detailed within and will not accept liability for any loss arising out of or in connection with its use. This article is for information only and should not be deemed as advice.