What investors do while traders are distracted

In difficult times, traders try to second guess what the market might do next. Investors are in for the long haul.

busy trader on the phone in front of board depicting asx share price risers and fallers

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Here's the understatement of the last couple of years: There's just a little bit going on right now.




They are, of course, more important as human issues than financial ones.

Each brings suffering in its own way, and the investment implications do – and should – come second.

But, as I've said before (and will say again), I'm a financial advisor working for an investment advice business, so that's where I'll focus most of my comments.

Still, it's important to recognise that the real issues aren't financial – and we hope for a good result in each case.

Financially speaking, though, in each case there's no shortage of 'new news' with each passing day (or sometimes hour).

It's hard to keep up with.

As soon as you've digested the last piece of news, and started to think about the implications, another one takes its place.

Again, those new pieces of news are important. They are real and they are impactful for the people involved.

They are also potentially impactful, economically and financially.


In the short term.

Medium term at best, is my guess.

That may not be the case if you're a Russian oligarch, of course. Or a Lismore cafe owner.

The latter group have my sympathy. The former, not so much.

But for the rest of us?

Those of us who have a diversified portfolio of ASX and US-listed companies?

Over the long term?

I'm going to stick my neck out here.

I don't know how long COVID hangs around. I don't know how long the Russian invasion of Ukraine takes to play out. And I don't know what Mother Nature has in store for Brisbane or the Northern Rivers region of New South Wales.

But I'm going to suggest that a year from now, none of those issues is weighing heavily on share prices.

Those odds get even longer if we look out 2, 3 or 5 years.

Now, think about the things that have occupied your mind recently, when thinking about your investments.

Are you waiting for COVID to finally go away?

Are you just going to 'wait and see' over Ukraine?

Have the floods, as awful as they are, distracted you from your long term investing focus?

Here's what I tweeted this morning:

The more nervous the market gets, the more it overweights the short term and underweights the long term.

That, right there, is the opportunity for the patient, stoic, long term investor.

We've seen just that over the past few weeks on the US and Australian share markets.

Overactive, overstimulated and overtrading.

Traders trying to second guess what the rest of the market might do next.

And that's despite next-to-no actual operational or financial impact for the vast, vast majority of the companies listed on our stock markets.

Remember, too: when the market falls by 2% it's wiping one-fiftieth off the value of all listed companies.

And, if you believe (you should) that share prices are the sum total of all future cash flows of those companies, from here to eternity… well, shaving one-fiftieth of that number away because of an issue half a world away just seems silly, doesn't it?

I got quite a few replies to that tweet.

One asked whether I was saying we were at the bottom.

My reply was simple:

No-one knows.

And probably useless to try.

The question I ask myself: "Will these shares be worth materially more in 5 and 10 years?"

If yes, I buy.

The short-term volatility is just a distraction.

There'll be more news.

More crises.

More reason to dither.

More justification to 'wait and see'.

And, if history is any guide, the money will be made while all of that happens.

Which means we have a choice.


I'm buying.

I reckon that's the right approach for almost everyone else, too.

Fool on!

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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