Discretionary Investment Management | Dario Milizia
16 May 22

Weekly update - Cutting through the noise

This week’s update comes from Dario Milizia, who is part of our discretionary investment management team in Bishop’s Stortford.

Overchoice or choice overload is a cognitive impairment in which people have a difficult time making a decision when faced with many options” – Wikipedia.

The article goes on to say that this idea has come under increasing scrutiny, however, I can safely say I was affected by something like this when trying to choose a subject to write about this week. The options seemed almost endless; the war in Ukraine, China lockdowns, rising inflation, central bank policy, recession… dare I say it… crypto… the list goes on. It’s like trying to pick what you would like to watch on Netflix.

The reality is that many of the press headlines scrolling across our screens can most likely be classified as “noise”. We can speculate endlessly over what may or may not be driving markets. What we can say for certain (and yes, somewhat simplistically), is that we have seen some extraordinary market volatility over the last week. Looking at just one index (NASDAQ composite), here are the daily movements[1]:

May 13, 2022

3.82%

May 12, 2022

0.06%

May 11, 2022

-3.18%

May 10, 2022

0.98%

May 09, 2022

-4.29%

Albeit this is a ‘tech’-heavy index and has perhaps seen more volatility than others, the figures illustrate the point nicely. The question is, what action, if any, should investors be taking in these circumstances? The discretionary team recently wrote an update that gives some sound advice: we must step back and remind ourselves of the things that matter to portfolios in the longer term. They point out that history favours those who have diversified portfolios with a long-term time horizon.

That is not to say we are advocating inaction! Indeed, we have already been taking steps to make portfolios more defensive as we believe that volatility will be persistent. However, taking stock of one’s situation and wider objectives is important in times of uncertainty. Additionally, having a good idea of what an asset should be worth is equally important as volatility can provide buying opportunities in excellent investments that have been carried along with the tide. If we are able to analyse the longer-term prospects of an investment with at least some degree of accuracy, then we can also estimate if its current value is a fair reflection of its potential.

On a slight segue, but related to the idea of assessing the fair value of an investment, it is incredibly interesting to see what is happening in the world of crypto.  Various media establishments have been reporting on the price crash (from c. $100 to near $0) in Terra, a so-called ‘stablecoin’ which was supposed to be pegged to the US Dollar. Commentators have also been highlighting the lack of transparency surrounding crypto generally. Ignoring whether there is now a systemic risk to broader financial markets from the sector, it is difficult to argue against the fact that understanding the intrinsic value of a cryptocurrency is somewhat difficult, at least it is to my mind! Talking about choice overload – there are reportedly over 18,000 cryptos[2]!

In summary, short-term fluctuations are undoubtedly painful, but maintaining a long-term view is important.  At Ravenscroft, we strive to navigate our clients through turbulent times as best we can, so please do get in touch if you wish to discuss either your circumstances or investments.

Wishing you all the very best for the week ahead.

Sources:

[1] www.investing.com
[2] www.investopedia.com 

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