Hedge Fund
Blu Family Office Blog: Birds
July 2022 - Hedge Fund
Blu Family Office Blog: Birds
Why travelling can teach you a lot about the markets.
We were halfway to London when the captain gave an update from the flightdeck. Apparently, we had hit a bird with the nose of the plane during take-off. Not just any bird, but one of prey, he said in typically precise German. They had performed all tests and the plane was fine, but the control tower insisted we turn around to perform some further safety checks. Was it the right decision to fly back the exact same distance as it would have taken to get to our destination?
Disregarding the utter misery that would ensue for the 200 passengers, it was a stop loss akin to what perhaps we should be doing with our investments. Global equities are down more than 20% from the highs and suffered the worst start to the year in more than five decades. Bonds got decimated, commodities got eviscerated and let’s not even talk about cryptocurrencies. There is also not a hint of good news out there. Inflation is still high, interest rates are going up, earnings expectations are coming down, and Boris Johnson is still trying to justify why the rules don’t apply to him.
We could easily drop another 20%, and no one would bat an eyelid. Yet timing the market remains a mug’s game and the statistics prove it. In fact, there are precious few of us that are hitting above 50% consistently, and that’s with all the quants, research capabilities, trading acumen or technology in the world. It is the reason why you need to do hundreds and thousands of trades to make the numbers work in your favour.
However, for some reason when it comes to our wealth we think we know better and take huge risks in the process. Say we take a view that equities are going to underperform, and stay in cash accordingly. What happens if the markets don’t go down for the next five years? We can’t stay in cash forever, and not only have we missed out on performance, but we may finally buy in right before the crash does occur.
There is no point fretting about the markets and thinking there is a call to be made. Pick your entry points, but keep topping up your investment so you can average in during all market cycles. For more than a hundred years, equities have always gone up, so there is a high chance that if you invest for the long run everything will be just fine. If you want to be clever, then prepare yourself for a lot of trading and some serious competition in a zero-sum game. Shame about the bird of course, may it rest in peace.