“Do you want the good news or the bad news?”
Unfortunately, you don’t really have a choice. Your brain is only interested in the bad news.
And unfortunately the world is a scary place day-by-day. We are bombarded by negative news – studies estimate that just 10% of daily news stories are ‘good’1. And those studies don’t include what people are reading on Twitter and Facebook!
There’s a lot of messy psychological stuff at work here. Our brains are designed to engage more with negative news than positive news, so media outlets keep it coming, swamping our optimism with every click and swipe we make.
2022 has been dreadful for this. If you’re not reading about the war in Ukraine, it’s only because you’re watching the UK Conservative party have a full-scale public identity crisis, or the price of petrol slowly creeping towards £2 per litre, or are queueing at an airport, or worrying about another wave of COVID. Our investment approach in the face of such hysteria is to stay informed and engaged, while not getting overexcited about any single outcome. Arguably that has been even more difficult than usual in the first part of 2022.
We’ve got a few techniques which help us take the long-term view – going for a long walk without your phone is top of the list, or getting lost in a history book or science-fiction novel. Living in the short-term is just too stressful, and genuinely reduces our ability to make the sensible long-term choices we need to make.
True long-term trends
And we can end up missing the true long-term trends if we just focus on the short-term. One of our research partners, GaveKal, had a great example of this a few years ago. They asked their readers what the most important event of 2007 was for financial markets.
Most of their readers are investors of some kind, so in one form or another, the answer was “the Global Financial Crisis”. That seems fair enough. We’re arguably still dealing with some of the fallout. Surely historians of the future will look back and pick that out as the key event of the year?
Perhaps not. Although it was 15 years ago, that is still a short-term way of thinking. Financial crises come around quite often (almost annually, if you’re from Argentina or Venezuela). They leave their scars, but tend not to change the world. No, the truly important event of 2007 was when Steve Jobs and Apple launched the iPhone, completely changing the way that we interact with the world around us.
Staying diversified and staying the course
Of course, in 2007, no one realised that the iPhone was as important as it has proved to be. Apple shares fell along with everything else, down 50% by 2009, along with the US market.
Since then the world has moved on from the financial crisis – the global equity market has quadrupled since its 2009 lows2. But Apple shares are up 56 times. Long-term trends trump short-term crises.
