This Too Shall Pass: On Noise vs. Fundamentals

In the rollercoaster ride of the 2020 market crash, it felt like the financial markets were the epicentre of our universe. Yet today, even such an unprecedented event feels and looks like just a blip in our rearview mirror.

This situation sheds light on a peculiar aspect of our psyche: our innate tendency to obsess over the present, which is great for evolutionary survival but a stumbling block for long-term investors.

The human mind is naturally drawn to two things: things that stand out because of their emotional {fear} resonance (salience) and things that are easily recalled, usually due to their recency (availability). The daily fluctuations of the stock market play into this predisposition perfectly.

This instinctual focus is crucial when immediate action is required – like evading a predator. However, in the realm of long-term investment, this instinct can lead us astray.

This behavioral tendency leads to two main issues for investors. First, the distraction of the present often causes us to overlook crucial information that could impact our long-term financial goals.

Second, it traps us in a vicious cycle of over-trading, driven by an incessant response to the latest information, which we might call the current ‘market story/noise’.

Reflecting on our past investment decisions, especially the 2020 forecasts and their inevitable errors, is unfortunately not common practice. It’s easier to keep marching forward than to face our previous blunders and their fixation on the inconsequential or unpredictable.

To break away from this fixation with the present requires not just overcoming our own biases but also going against the grain. It’s not only about personal instincts; it’s about societal expectations.

In this context, action is about more than just survival; it’s about maintaining professional credibility.

Certainly, there are times when market events are crucial for long-term financial strategies. These can be fundamental changes or behavioral challenges like navigating through market downturns or speculative bubbles. However, these are often overshadowed by less significant or unpredictable factors.

Living in the thick of market movements makes it difficult to identify the essential signals amidst the noise. For many, completely ignoring market fluctuations isn’t feasible, so the next best approach is to pre-define what’s critical and disregard the rest. This is the challenging but necessary admission fee for the benefits of long-term investment.

Being a long-term investor, while being captivated by short-term market movements, is like trying to diet in a candy shop. Yes, you might still reach your goal, but you’re certainly not making it easy for yourself.

If you find yourself swept up in the turbulent tides of market ups and downs, remember that you don’t have to sail these waters solo. Consider reaching out to our wealth management team at Luthuli Capital.

We specialize in helping investors differentiate between market noise and key fundamentals, aligning your investment path with your long-term objectives.

In the internet age where information and opinions are so readily available, investing in professional and discerning guidance might just be the wisest decision you make for securing your financial future. We look forward to hearing from you.

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