Markets have fallen recently with concerns over rising inflation and interest rates and the war in Ukraine. In this uncertain environment, clients are asking me: “should I sell?”, and those with cash to invest are uncertain if now is the right time to commit to investing.
Why do falling investment markets cause concern?
Rather than seeing movements in markets as being completely normal and part of the regular cycle in markets, I believe the media instills fear among investors. I follow the financial news every day and read headlines dominated by talk of slumps, crashes, stagnations, recessions etc. but rarely see positive news stories about investments and markets such as how many global stock markets reached all-time highs in 2021.
This is getting worse with internet-based news as “click bait” headlines are used to prompt us to click through to read these apparently disturbing events.
Humans are bad investors
Our brains are not designed to make sound investment decisions as we are subject to biases and cognitive distortions and our emotions, rather than fact and logic, overly influence our decisions. One of our biggest weaknesses is our loss aversion which can lead to not taking advantage of investing at low prices during market falls.
Professionals versus amateurs
We often see professional investors reacting in an opposite manner to the general public/retail investors. Many retail investors will sell and are fearful when markets fall but professionals will be taking advantage of lower prices and be purchasing investments.