The market continues to swerve with each new development in the Middle East. This can be a scary time for investors which increases the chance of making mistakes. These are three quotes I come back to when markets are volatile.
“Everyone has a plan until they get punched in the mouth.”
Mike Tyson
Yes, I am talking about Mike Tyson. The one with the face tattoo. And no, Mike Tyson is not a famous investor. He is a boxer. Many opponents found themselves weak in the knees and staggering around after climbing in the ring with Iron Mike. This may sound familiar for investors who have been through the depths of a bear market.
Like an overmatched boxer, many investors quickly shift into fight or flight mode. That means getting as much money out of the share market as quickly as possible. Many of these investors don’t have a plan other than trying to get as rich as possible in the short-term. And when “everybody knows” the market will keep falling, the way to have the most money possible in the short-term is to sell.
Having a plan and an investment strategy can make a world of difference in these situations. Understanding where you want to get to over the long-term and what it will take to get you there is what keeps you invested. And staying in the game is critical because when “everybody knows” something is going to happen, it is likely the market will do the opposite.
"The biggest risk of all is not taking one."
Mellody Hobson
Mellody Hobson’s quote doubles as investing and life advice. We hear a lot about how risky it is to invest. Mostly, we get this advice from people who don’t invest. A more sensible approach is to reframe your thought process to focus on the risk of not achieving your goals.
When doing that it becomes obvious that risk is not the short-term volatility of growth assets like shares. It is not taking on enough short-term volatility to achieve the returns you need. This is risk tolerance vs. risk capacity. Framing risk around your goals rather than your reaction to a hypothetical scenario is the pathway to achieving them.
"The investor's chief problem-- even his worst enemy-- is likely to be himself."
Benjamin Graham
Investing successfully means trying to act as rationally as possible while knowing that complete rationality is an unachievable goal. There are many different emotions wrapped up in investing. Describing it as greed and fear falls to capture the full spectrum of those emotions.
It is not greed for greed’s sake but the desire to create a better future and relieve the burden on loved ones. Fear is not just the fear of diminishing account balances. It is the fear of failing your family. Not giving them the future you desperately want to provide.
Given the complexity of the emotions around investing it is necessary to create structure and actively pursue rationality. Write down your goals, strategy and approach. Seek out people to keep you accountable. Implement speed bumps to slow down your decision making. Behavioural discipline can be a source of edge or advantage for investors but takes as much work as analysing companies.
Acknowledging that we all carry baggage that influences the decisions we make is a good place to start. A bit of self-reflection goes a long way in designing a process to overcome that baggage.
Mark Lamonica
Also in this week's edition...
This week I tackle the emerging prediction market which some brokers claim will be bigger than the share market. Ben Graham isn’t around so I can’t ask him what he thinks about prediction markets – but I can guess his view.
Much of the commentary about the economic impact of the Iran war has focused on oil prices. Jason Teh digs a little deeper and looks at the shortage of refined products.
Gold skyrocketed in 2025 as investors piled into the precious metal. John Reade and Ray Jia look at the gold supply and the ability of miners to react to the increased demand.
As markets sink, investors have continued to pour money into ETFs. Andrew Jones from Vanguard outlines which ETFs are on the shopping list.
Policymaking is front of mind as we approach the budget while dealing with elevated inflation. Tony Dillon lays out the complexity of compromise in a divided electorate.
Issues in the global private credit sector are all over the front pages as funds limit redemptions. Geoff Saab digs a little deeper.
Roy Green explores a new report showing the drop off in Australian innovation.
This week's white paper from Yarra Capital Management ponders whether the RBA's latest rate hike is one of the biggest policy errors Australia has ever seen.
Curated by Mark Lamonica and Leisa Bell
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