An eerie calm has descended over markets, with both the FTSE100 and S&P500 recovering the losses following April’s tariff turmoil. In fact, for all the criticism of Donald Trump, it is interesting to note that compared to the day of the US election on 5th November, the S&P500 is higher, interest rates are lower, inflation has fallen, oil prices are down and the US economy remains pretty close to full employment. There is even a US Pope.
Next time I’m sure I’ll return to concerns over tariffs, fiscal deficits and interest rates but here’s something a little different for you today. I’ve just finished reading The Psychology of Money by Morgan Housel, which is an excellent exploration of how human behaviour shapes financial decisions. It is told through a series of stories and analysis, focusing on how emotions, bias and underlying perspectives influence our relationship with money.
Given the events of the past seven weeks, it seems an opportune moment to highlight and consider his views on volatility, something that is both real and very common in stock markets.
The money gods often don’t look kindly upon those who seek reward without paying a price. Market returns are hardly ever free. The price paid will often be periods of high volatility and short-term loss, but as investors we must remember that to stay invested and suffer these periods of volatility will more often than not reward us with long-term compounded returns. Although not unexpected, The Sage of Omaha, Warren Buffett, announced he would soon hand over the reins at Berkshire Hathaway. There is little doubt that he is a skilful investor, but perhaps his secret was time, compounding returns for over 60 years. Whilst for many that sort of time frame seems unachievable, the theory is worth bearing in mind.
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
