Here’s the most basic thing you need to know about the world today. None of it is really that bad. The reactions you see in currency and stock markets aren’t a result of an election or referendum. It’s a result of humans making decisions on outcomes they simply cannot be certain of.
When humans make decisions on uncertain outcomes, what do you think you get as a result…?
Uncertainty, of course.
Here’s a thought. What if, as a result of the British referendum last month, everyone had decided it was an amazing outcome? That the UK will become stronger and more robust — a powerhouse of the global economy once again.
Or that, when the Aussie election finally ended, the country could move forward and thrive? That a result — any result — might be a good thing. Now we can get on with it. Foster innovation, transition to a knowledge economy — become a global economic force once again.
What impact do you think that would have on markets? If everyone thought the days ahead were better, would it drive markets higher?
Think about the stock market. Small-cap stocks in particular. What impact might a change of mindset have?
After all, what evidence is there that things will be bad long term? In fact, what proof is there of how anything will be in the future? There is none, of course.
There is no such thing as a 100% accurate future predictor. If there was, I’d probably be on a beach in the Mediterranean, wondering which of my mega yachts I was going to use today.
But as educated investment professionals, our job is to try and predict what’s coming in the future. To give you advice and guidance on where to invest, and in which companies. Of course, we never profess to get it right 100% of the time. No one should. If they do, don’t trust them.
We also aim to be a guiding voice. In the investment game, it’s not just about which stocks you put your money in. It’s also about having the right temperament, knowing when to get in, when to get out, and when to keep a calm head.
Now is the time to keep calm. And now is the time to pick the right opportunities for your investment strategy.
It’s easy to get caught up in the negativity when you’re bombarded with it 24/7. If you don’t see it on news broadcasts during the day, you see it on social media. Or you hear about it while chatting with friends and family. Or you just make stuff up in your own head to kill time.
The world today is one giant mainstream media report. It’s everywhere. On the TV, your phone, billboards, radio, bus stops, trams, trains…everywhere. And the problem is there’s no media station in the world that only tells you about how good things are, or how good they can be.
Bad news sells papers. Bad news keeps you fearful. It keeps you obeying the rules. It keeps you in check for the powers that be to control you. In our modern world, fear reigns supreme — and it leads to some silly and irrational behaviours.
This fear and uncertainty causes your ‘average’ investor to sell stocks in a market that actually isn’t that bad. It also creates opportunities for investors who can filter the noise, and make shrewd and smart investment decisions.
We’re not saying the overall market is going to leap ahead and set new record highs in the next year. In fact, we’re on record saying we don’t think the All Ordinaries will change much over the next five years. They will truly be ordinary.
We also think that, while the picture in Australia isn’t amazing right now, it’s not as bad as it could be. The future can be prosperous. While the government can help boost that prosperity, it probably won’t. But private industry will. Australia could be at the forefront of a major boom in new innovations and technologies — keep following Money Morning and I’ll cover more in the coming weeks.
And overseas? Well, the UK leaving the EU will prove to be a godsend. The UK will be better off in the long run, for sure. In fact, if the whole EU broke up, we think the entire region would be better off. Hopefully that’s the direction the EU is heading in.
These outcomes are all positive. They will lead to better markets. But right now, while people buy into the mainstream belief that things are bad, it becomes a self-fulfilling prophecy.
But things aren’t that bad.
There are still amazing companies on the ASX — most of them small-caps. If you take the right mindset, you’ll see the opportunities that are right in front of you. You’ll then find that, even with fear and uncertainty, the stock market can be a highly rewarding place for investment.
Editor, Money Morning