The sky is not falling
There seem to be a lot of industry pundits convinced that the sky is about to fall. ‘Late-cycle’ dominates market commentary. The reality is that timing the market is nothing short of impossible.
Chicken Licken, which you may also know as Henny Penny or Chicken Little, is a fable about what happens when panic is brought on by the mistaken belief that disaster is imminent. Chicken Licken thought the sky was falling when an acorn fell on his head. He then convinced the other animals, including Ducky Lucky and Goosey Loosey that the world was coming to an end. The panic spread. Only one animal, Foxy Loxy, had the ‘moxie’ not to believe everything he was told. Foxy Loxy used the hysteria to his advantage. The sky did not fall and, like most foxes in children’s tales, he was no vegetarian and enjoyed a poultry buffet.
Foxy Loxy’s moxie can teach us about investing. Foxy Loxy wasn’t trying to time the market nor constantly expecting the worst. Rather, Foxy Loxy continued to do what foxes are known for – being cunning and patient. A cunning investor remains invested, having built their portfolio to withstand shocks and deviations. Foxy Loxy’s portfolio would be well diversified by geography, stock and by sector. A diversified portfolio allows investors to share in the upside while limiting the downside.
Chicken Licken’s reaction to a falling acorn was disproportionate to the actual threat. For every market movement that is not favourable, there will likely be someone eager to write a story that is equivalent to “the sky is falling”. If you invest like Foxy Loxy and are well diversified and focus on the long term, you don’t need to be concerned by a single acorn falling.
Long term performance of the major asset classes in Australian portfolios over the last 15 years
Source: Morningstar Direct, 1 December 2004 to 30 November 2019. Results are calculated monthly and assume immediate reinvestment of all dividends. You cannot invest in an index. Past performance is not a reliable indicator of future performance. Indices used Cash – Bloomberg Australian Bank Bill 0+ Yr Index, Global Bonds – Barclays Global Aggregate Bond Index A$ Hedged, Australian Bonds – Bloomberg AusBond Composite 0+ Yr Index, Australian Property – S&P/ASX 200 A-REITs Index, International Equities – MSCI World ex Australia Index, Australian Equities – S&P/ASX 200 Accumulation Index, International Property – S&P Developed ex Australia REIT Index AUD Hedged, Emerging Markets Equities – MSCI Emerging Markets Index, Global Infrastructure – S&P Global Infrastructure AUD Hedged
Foxy Loxy will remain invested because he knows that trying to time the market is a game for the Chicken Licken’s of the world, and they rarely get it right.
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