Last week was a microcosm of the misleading maelstrom facing long-term investors.
You may well be aware that Meta – previously known as Facebook – suffered a beyond-imagining $230 billion wipe out as its active users fell for the first time.
You’re also familiar, I’m sure, with the Bank of England’s decision to raise interest rates to 0.5%, with a narrowly defeated proposal to set them even higher, at 0.75%. Minutes of this awesome display of near boldness left bond markets giddy.
What you probably didn’t read, however, was the rather unexciting news that, overall, global stock markets eked higher last week, as they do more often than not. It was the dramatic deviations from that trend that made the headlines.
Markets not immune from growing intolerance of error
Despite parochial reports suggesting otherwise, the struggle to suppress rising prices is not confined to the West. For instance, Turkey’s President Erdoğan has just sacked his head statistician for having the temerity to report inflation of 36% – a foolish mistake (by the statistician).
Indeed, there is a sense that society’s increasing insistence on immaculateness – surely the consequence of an enveloping indelibility in the ways we communicate – has left its mark on the markets, too.
One example of this is concern about the prevalence of so-called “closet trackers”: fund managers paid to try and beat a benchmark who in fact all but follow it, for fear of failure to outperform (surely an admittance, on their part, that they cannot reliably do so).
Another example of error intolerance is how central banks now rely almost as much on their carefully phrased ‘forward guidance’ as on their actions, as if they fancy themselves horse whisperers. The trouble is, markets have begun to obsess so much over every syllable that even the slightest miscommunication could cause them to buck.
It is easy to see how those responsible for taming inflation might struggle to balance what they consider the best course of action for the economy – not a trivial matter in itself – with how skittish markets might react. History is not short of recessions brought about by unforced policy errors, and it would be ironic if the next were attributable to an excessive focus on forward guidance, which was supposed to be part of the cure.
Fortunately, it’s relatively straightforward to avoid major long-term investing howlers. Putting your money to work in a diversified portfolio that doesn’t bet a significant sum on any one particular company like Meta is an obvious lesson.
Once that’s done, the biggest mistake you could make is fretting about alarming headlines as the unreported world keeps turning.
Past performance is not a guide to future returns. Please note that the value of investments can go down as well as up, and you may get back less than you originally invested.