At times the stock market can be volatile, and may fray the nerves of even the calmest investor. While market crises may be unavoidable and unsettling, they aren’t the end of the world. In fact, investors looking to stretch their money know that market lows may represent advantageous buying opportunities.
A few years ago, when people discussed investing, they held a certain reverence for the word. It was a necessity. People liked to talk about their financial statements and brag about how well their investments are doing. After the drop, the word “investment” is now used almost as a curse word.
Despite the economic downturn and a lot of less-than pleasing financial statements, investing still matters. People are emotional creatures. While we like to believe that we make rational investment decisions, actually emotions like greed and fear influence these decisions.
As investor “Warren Buffett”, Graham's favorite student, puts it:
“Be fearful when others are greedy and greedy when others are fearful”.
In most industries, meeting consumer demand is job one. But in the mutual fund industry that equation is not quite so straightforward, because what customers want (i.e. funds investing in the hottest sector) is often precisely what they shouldn’t have. The issue is further complicated because mutual fund managers are bound by a fiduciary duty to act in the best interest of their fund shareholders.
There is a big variance of opinion. The markets are unhealthy when there is homogeneity. You have a whole bunch of people who are still very bearish, They acknowledge the issue of what happens when the monetary and fiscal stimulus goes away. You have deflationists, as well as inflationists, who believe the risk is that the velocity of money will increase too fast and that the situation will end in tears because the Fed will lose control of the monetary base.
Investors in the MENA region are now, in many cases, more nervous than they were as the US
In line with the global equities markets, 2010 was very forgiving for the Middle East and North Africa (MENA) region, with most managers believing the worst is over and now is the time to invest in the region.
The 2011 unrest in the MENA are unprecedented in scale and scope. This whole episode is going to have a significant effect on the way funds are governed by the time all is said and done.
For many years, the regimes in MENA ruled with an iron fist. It was unthinkable that the people could overthrow their governments.
In the midst of all this change and chaos, there are lessons for us all. In fact, it would do us good to heed the signs and master the lessons early. To do otherwise would be unwise. The lesson for investors is simple. Don’t make the mistake of choosing an investment based upon the recent past — letting your emotions dominate your investment decisions is just about the worst decision you can make. And towards end, recognize that most mutual fund managers view themselves as nothing more than widget manufacturers, giving the investing public whatever it wants, whenever it wants it.
Assumptions are dangerous and limiting. What we assume becomes our weakness and blind spot. It makes us vulnerable and easy to control. In truth, anything in life is possible if you believe it to be. The only limits that we have are the limits that we choose to impose on ourselves. If you have the burning desire for change, you can change because you will find a way to do so.
Participants in the financial markets must be prepared for any number of possibilities. The best way to do so is to establish an asset allocation that you’ll be comfortable holding. Keep costs as low as possible, and diversify as broadly as possible using a mix of low-cost index funds. Call it planning for the worst while hoping for the best.
The good news is that markets will not stay spooked forever. “Markets will eventually adapt…However, political risk analysis is a new area for many, and it may take some time before markets become comfortable with this”.
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