SNAPSHOT2 min read

Six tips for better behavioural investing

04/05/2020
behaviour

Authors

Nick Kirrage
Co-head Global Value Team

At a turbulent time for global markets, we discuss the current state of financial markets, reflect on the behaviour of investors and how they might best navigate the current turmoil. Below are six key points.

1. Understand what’s driving market volatility

There has been a huge amount of stimulus, but there will also be a huge drop-off in demand. The disruption that causes will impact the economy. What investors are trying to work out is what effect that will have and whether it will be short-term or long-term. That is what is destabilising markets.

2. Investor capitulation presents an opportunity

We use what we refer to as the “psychological circle” to try to gauge the wave of emotions investors go through when managing their investments.

We are currently somewhere between fear and capitulation. People are unsure and they can think everything is going to be okay and that’s why we get mini rallies.

From our perspective, days of big rallies present opportunities to sell stock where we think we can do better elsewhere. The big negative days, where no one seems to want to buy a single company, could be the best possible time to be buying shares.

3. Work with your emotions

It is better to reflect on your needs in the context of emotions, rather than trying to argue that we are able to be entirely rational. Investors can be irrational. It is not helpful but that is why we get such big swings in markets and that is where opportunities lie.

4. Remember why you invested in the first place

When times are good, you tend to focus on the positives. When times are bad and markets are falling, you tend to gravitate towards the negatives.

No business tends to have 100% good aspects. Look at the solvency of the businesses you are invested in and what their obligations are. Try to remember what the attributes were that attracted you to those investments in the first place.

5. Average prices down rather than try to time the market

As investors, we seldom get the bottom of the market, but you can average down your prices and get the best possible average price over time. It is about having a plan. Be brave but be sensible. Be as unemotional as you can be and slowly put your money into the market.

6. Keeping your head up and look further down the road

I always think of investing like driving a car. If you’re trying to drive a car looking six inches in front of the bonnet, it is absolutely impossible. Everything is coming at you too quickly. Everything is changing at high speed. But if you actually lift your head, look further down the road and in your rear-view mirror, things can actually look more stationary. In that context, you can take stock of what is going on. You can then see the stuff that is in front of the bonnet as either an opportunity or a threat. You can then choose to either get out of the way or a different path, whatever that is.

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Authors

Nick Kirrage
Co-head Global Value Team

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