Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 622

A letter to my younger self: investing through today's chaos

As another US earnings season looms, it is easy to feel like markets are caught in a constant state of contradiction. One day, the headlines warn of doomsday scenarios; the next, they celebrate a new golden age. One could be forgiven for feeling that we are trading through one of the most complex and confounding periods in market history.

In moments like this, perspective matters. So I’ve taken a step back to write a note I wish I’d received earlier in my trading journey - a guide for navigating the volatility, narratives and noise of the next 12 months.

Experts talk; markets move

Markets possess an uncanny ability to price in realities far more effectively than any single expert. Be aware of market sages, there aren’t any! And yet, when markets begin to rise, many of us remain stubbornly sceptical, perpetually waiting for the next crisis to justify our pessimism.

Since the bottom during the tariff-induced downturn and the swift V-shaped recovery, I've watched seasoned strategists talk against the prevailing trend. Fear was sown at every peak, even as markets marched to record highs.

Why do we do this? Perhaps as humans, we are uncomfortable with outcomes that seem too good to be true. We struggle with simplicity and, worse still, with success. The most complex challenge for any trader — myself included, even after 25 years in the markets — is the willingness to pivot quickly from biases and confront our egos. Recognising when we're wrong is difficult; acting on it is even harder.

Forget the noise

One theme I noticed — perhaps more acutely than in previous cycles — was the persistent narrative ridiculing so-called "dumb money". In early April, as high-quality names like Nvidia traded at what now look like fire-sale prices (sub-$90 per share), retail traders were mocked for "chasing the rally".

Yet just a few months later, that same "dumb money" is sitting on significant gains, while institutional traders scramble to catch up, underweight and underperforming relative to their mandates and benchmarks. We call it FOMO, but let’s be honest: this is institutional underperformance, plain and simple, as they chase peak boom before the bust.

As a retail trader, your greatest edge is time — an advantage most institutions do not have. Today, with an abundance of real-time information and analytical tools at your fingertips, you are well-equipped to make informed trading decisions. Don’t let legacy voices tell you otherwise. The advent of active ETFs has widened the scope of easily accessible and liquid vehicles of global investment experts, offering a fantastic overlay to self-directed portfolios.

The machines are in control

Since the Global Financial Crisis, markets have increasingly become the domain of mechanics and liquidity, not fundamentals. Central banks, in their quest to avoid recessions at all costs, have engineered smoother cycles and compressed volatility. In doing so, they have handed over the reins to a new set of rulers: the market makers behind options, structured products, and passive flows. The rise of yield-generating ETFs has been the new play of the last few years led by funds such as JEPI.NYSE which has USD $41.08 billion in assets under management as of 24 July 2025. This is an impressive rise since it’s 20 May 2020 launch.

Today, price action is often dictated less by economic narratives and more by positioning — the supply and demand dynamics of derivatives, structured products and fund flows. Fundamentals still matter, but they operate on a lag. In the short- to medium-term, they're frequently overpowered by the gravitational pull of volatility hedges, unwinds, and systematic rebalancing.

Take the Commonwealth Bank of Australia (CBA) as an example, trading well above consensus valuation models. Traditional frameworks struggle to explain such moves, leaving strategists perplexed. The uncomfortable truth is that many daily market swings are driven by technical flows, such as options market makers adjusting hedges. These are difficult to articulate to clients or in the press, but they are increasingly the most accurate explanation for sudden dislocations.

Most large selloffs in recent years have coincided with options expiry events. The COVID crash in early 2020 is a textbook example, commencing after the weekend of a large options expiry.

Next stop: uncertainty

The market’s reaction to geopolitical turmoil is often far more muted than headlines and images would suggest. Unless the event directly affects oil supply, inflation expectations, or interest rate policy, markets tend to price in geopolitical shocks swiftly and move on. Tariffs are a prime example — what once seemed like seismic risk was priced, as markets learned to interpret the cadence of U.S. political posturing.

We now find ourselves in the late stages of the current business cycle — a phase I’ve often found to be the most difficult to navigate. The final leg arguably began after the 2022 equity correction. As in prior cycles, we're inching toward a peak, not with a crash, but with a slow, euphoric stretch of valuations to their limits and a slow grind down. Not the crash scenario that bearish analysts seek. In hindsight, this often reveals itself as the “blow-off top” — a familiar signal in technical analysis.

This is a time for vigilance. Sentiment can push markets well beyond what’s rational. When optimism becomes the prevailing mood and narratives turn one-directional, that’s the moment to begin de-risking gradually and purposefully.

Yet this cycle presents a unique wrinkle: fiscal dominance over monetary support. In a typical cycle, central banks would now be stepping in, providing liquidity to counter weakening GDP and PMI prints. Instead, they’re holding back, waiting for the US administration to finalise its multi-legged bilateral tariff agreements and for lagging indicators to confirm what markets have already priced. This timing mismatch — where markets look six months ahead, and central banks act on six-month-old data — creates opportunities and frustrations for traders.

Final reflections

Markets speak in many tones - sometimes in whispers, sometimes in screams. Right now, some signals are hard to ignore. The rally feels one-sided. Price action is accelerating. And one of the more telling indicators is flashing amber: the VIX is edging higher, even as equities push upward. That’s not typical. These are the moments that make me uneasy. As the saying goes, “I get scared when everyone else is greedy.”

Yes, buying the dip worked in April, but one day, it won’t. And when that day comes, it is unlikely to be a sudden crash. It will be a slow, grinding decline that wears investors down through fatigue, not fear.

One of my most valuable lessons from markets is how the most successful investors protect their wealth: they stay calm, keep a buy list ready, and hold capital reserves for when everyone else is panicking. Every major sell-off feels existential in the moment. And yet, history shows that these moments reward those who act with calm conviction.

Right now, AI-driven investment enthusiasm is pushing valuations into uncharted territory. The momentum may persist, fuelled by global tech giants and the corporate arms race to keep up. But we’re likely in the final leg of this cycle - one that could stretch further than logic allows, before it inevitably gives way.

 

Michael Bogoevski is Head of Institutional APAC at CMC Markets. This article provides general information only and does not consider the circumstances of any individual.

 

3 Comments
Ramani
August 03, 2025

Looking at this from the tail end of the mortality curve, as our lives ebb asymptotically to the finish line, what would the author write to his terminal self about the exciting and excruciating journey, punctuated by placid nothingness in between?
Here are a few ideas:
Hope you enjoyed the trip.
All currency is crypto, based on the value others will put on it. Imagine gold being confected in factories through alchemy.
Poverty and plenty both trigger needless angst detracting from simple living.
Give it away before too late. Styx does not permit smuggled goods.

James Gruber
July 31, 2025

Hi Laurent,

Firstlinks is only licenced to give general advice rather than individual advice.

Best to see a financial advisor and professional you trust.

James

Laurent
July 31, 2025

Hi Michael, I agree with your approach and I have adopted a regular investment strategy, dollar cost averaging, etc.

First question: I have received an inheritance and I want to invest the maximum $360k in my superfund this financial year. How do I do that ? Should I invest the whole amount now, even if markets are at all-time highs? Should I invest $30k per month over 12 months? I even thought about investing zero on very positive months like July and invest more than $30k after disappointing months. What do you think?

Second question: I have all my super on the "High Growth" option because my investment horizon is very long. Should I move everything to the "Growth" option? to the "Balanced" option?

 

Leave a Comment:

RELATED ARTICLES

The Living Years Survey: Is this time different?

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 628 with weekend update

Australian investors have been pouring money into US stocks this year, just as they start to underperform the rest of the world. Is this a sign of things to come? This looks at 50 years of data to see what happens next.

  • 11 September 2025
Exchange traded products

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement

We need a better scheme to help superannuation victims

The Compensation Scheme of Last Resort fails families hit by First Guardian and Shield losses, as well as advisers who are being wrongly blamed for the saga. It’s time for a fair, faster, universal super levy solution.

Investment strategies

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Economy

How bread vs rice moulded history

Does a country's staple crop decide elements of its destiny? The second order effects of being a wheat or rice growing country could explain big differences in culture, societal norms and economic development.

Investment strategies

Small caps are catching fire - for good reason

Small caps just crashed the party like John McClane did in the movie, Die Hard - August delivered explosive gains. With valuations at historic lows, long-term investors could be set for a sequel worth watching.

Defensive growth for an age of deglobalisation, debt and disorder

Today’s new world order appears likely to lead to a lower return, higher risk investment environment. But this asset class looks especially well placed to survive, thrive, and deliver attractive returns to investors.

Economy

Will we choose a four-day working week?

The allure of a four-day week reflects a yearning for more balance in our lives. Yet the reliability of studies touting a lift in productivity is questionable and society may not be ready for such a shift anyway.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.