Time to Panic? Time to Buy?

“The stock market is a device for transferring money from the impatient to the patient.”

– Warren Buffett

What a tumultuous time we live in currently, with the Russia/Ukraine War, increasing commodity prices, including oil; higher inflation and we don’t even know what Covid-19 has in store for us in the next round.

Understandably, clients of Lunar Capital have called us to ask what they should do under these circumstances. Some are concerned and want to sell; some see this as a buying opportunities and others who want to invest don’t know whether they should or shouldn’t invest now.

In our view, it is not easy to predict what will happen in the short-term. The answers to our clients’ questions also depends very much on their own financial circumstances, risk appetite and their long-term plans.

If you are investing for the long-term, then the biggest mistake that you can make as an investor is to sell in a panic. Panic selling is an emotional decision. It locks in a loss in your portfolio. But perhaps the biggest mistake is that you will more than likely stay out of the market and miss out when market rebounds, losing out on potential future gains as well.

Another mistake is that investors may be a bit too aggressive early on in a bear market. This may be because they have excess cash that has yielded very low returns, or they missed out on a previous bull market, or they have a higher risk appetite. This approach may pay off if the bear market is short and sharp (like we experienced in March 2020). However, it could be a longer bear market and the aggressive investor may miss out on future cheaper prices.

Our view is to take a more considered and cautious approach. Invest in small amounts (like regular debit orders) and ride out the peaks and troughs of the market swings. This reduces the risk of large capital losses but also allows you to take advantage of prices as they are lower.

The best approach is to have a long-term strategy which guides you through the swings in the market. For example:

  • Regular contributions to a fund or funds that meet your long-term financial objectives.
  • Increasing your offshore exposure to a pre-determined target (e.g., 40-50% of your net investable assets).
  • Having the right mix between growth assets like stocks and some cash required for emergencies and short-term requirements.
  • Have some diversification in your investments, but not too much.

You can also take advantage of sale prices in excellent businesses that will likely pay-off in the long-term. You will need the patience to ride out the volatility and bear market conditions in the short-term, however.

Be cautious, there may still be more volatility and pain in the short-term, many stocks are certainly offering better value then a few months ago.

 

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January 2022 Fund Fact Sheet

The Lunar BCI Worldwide Flexible Funds January 2022 Fund Fact Sheet can be found on our website, showing the latest performance of the fund, amongst other pertinent information.

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