It's Noisy Noisy Noisy (and, Diversification is Back)

Has the world ever felt so noisy? I don’t know if the news cycle has ever been quite this hectic. Things feel like they are changing minute-to-minute, and some of these changes might turn out to be tectonic in their nature.

It feels unprecedented.

And in many ways it is unprecedented. Trump is literally tearing up 80-years of world order. World order that has, mostly, maintained peace and prosperity for the Western-alliance. Not only that, the US economy suddenly looks increasingly fragile with government austerity combined with, in the words of the Wall Street Journal, the ‘dumbest trade war in history’, creating what might end up as a viscous downwards spiral for the US.

If it feels scary, that’s because it is scary. If you feel emotional about it, that’s a totally normal reaction. I have, at times, felt like crying.

But here’s the thing.

I will not let that feeling or those emotions anywhere near my portfolio. Feel the feels. Don’t act on it.

What is happening today is actually irrelevant for us. The noise is irrelevant for us. We are long-term, goal-focussed, patient, disciplined investors. Short-term market gyrations in stock prices have nothing to do with us.

They have nothing to do with us.

We built your financial plan on the expectation that the market would fall, from peak to trough, around 15% at some point each year. We expect this! We can never know what is going to cause it, but we always expect it.

Every, roughly four or five years we expect a fall closer to 30%. It doesn’t happen like clockwork, but if you look at all the market falls of 20% of more that have happened since the end of the Second World War (shown below), they happen, on average, about every four or five years. We have been through a lot! So so much.

And here’s the next thing.

This feels unprecedented, but it’s always unprecedented.

The Cold War was unprecedented.

The Vietnam War and Oil Crisis of the 70s was unprecedented.

The dotcom bubble and burst was unprecedented.

Two planes flying into the twin towers was unprecedented.

The Great Financial Crisis was unprecedented.

COVID was unprecedented.

We can’t make investment policy out of the waxing and waning of Trumps’ tariff threats or any other of his policy ideas. They will end up being whatever they are. He will do them or he won’t. What will happen is that the great companies of America and the world will begin (they already begun months ago) working around them. They find a way to work around everything. They always have.

The market recovered from every one of the crises above. Look at the relentless uptrend of the prices in the two right-hand columns. This happens because companies are resilient and rational. (Governments on the other hand...). Recessions, market corrections and yes, presidents, come and go. But the great companies of the world – they endure and prosper.

Let’s focus on the right thing.

Let’s do the right thing.

I told you, everyone of our clients, that I would help you do nothing when doing nothing is the right thing to do.

There is nothing to do right now*. Our beautifully diversified portfolios are doing exactly what they are supposed to do.

And in fact, the GOOD news is…diversification is back! The US is one of the worst performers year to date, with the S&P now in correction territory (down 10%) whilst the main European index is up 15% year-to-date. We are underweight the US (due to it’s long period of outperformance) and we own Europe and the rest of the world.

I have said, many many times in the past....at some point we will be very grateful that we own the rest of the world. And finally that time has come.

So hold tight everyone. It was never a straight line.

This too shall pass.

*There is nothing to do, except of course, buy. If you have spare cash, now is probably a good time to get it to work. My family and I just invested our excess cash.