We can never know what will happen in the markets tomorrow, but we can look back over the last hundred years and see how trends and long-term market growth have helped investors build valuable portfolios. At Victus Group, we recognise that keeping an eye on the big picture (long-term gains) is really helpful when there are short-term losses.
It’s also helpful to understand risk and return, and the cycles of the markets. Whether you’re casting your line off the end of a pier or buckling your seatbelt, we all deal with risk and return. Somehow, when it comes to emerging markets, nominal vs real, risk adjustments, multi-asset portfolios, protection strategies and bull vs bear markets, we panic amidst an onslaught of emotional charge that overwhelms us.
All investments involve a certain amount of risk. When you attach your bait to the hook and throw it into the ocean, it may come back the same, empty, or with a nice-sized tuna. That’s the risk you take; where you cast, how often you cast, when you reel your line back and how much bait you use. Those are all related to risk.
Adding to the complexity of risk is the consistent shift in market cycles.
A bull market refers to a market that is on the rise. It is typified by a sustained increase in price, for example, in equity markets in the prices of companies’ shares. In such times, investors often have faith that the uptrend will continue over the long term. Typically, in this scenario, the country’s economy is strong and employment levels are high.
By contrast, a bear market is one that is in decline, typically having fallen 20% or more from recent highs. Share prices are continuously dropping, resulting in a downward trend that investors believe will continue, which, in turn, perpetuates the downward spiral. During a bear market, the economy will typically slow down and unemployment will rise as companies begin laying off workers.
This reminds us that the markets will correct, they won’t always be down, and they won’t always be up.
This is why it’s important to breathe and remind yourself that all things work in cycles. It’s also comforting to note that, as Sygnia Asset Management once pointed out, bear markets have historically been shorter than bull markets.
At Victus Group, we believe that Investing is about growing wealth, not gambling, and we handle every client portfolio with the care and attention it deserves.