Market Commentary

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For all the wisdom of decades of investing, not much has changed in financial markets. Boom and bust cycles still exist and with the prospect of substantial gains, there is always motivation to engage in speculation. What is constant however across all investment cycles is the behaviour of investors.

We are currently experiencing a great deal of uncertainty on global share markets and in the short term there will be poor performance figures.  It is important through these periods to always bear in mind that the short term is unknowable, but the long term is inevitable. I base my comment on history, and as the saying goes, history does not repeat but it often rhymes.

The fact that stock markets, and in fact all growth markets, have good years and bad, however over the long term there is only one trend and it is up. Across the history of the Australian stock exchange 80% of the time the market has risen. Since the introduction of the Accumulation Index in Australia the market has risen by an average of 13% per annum.  This is despite some seriously scary periods such as the 1987 Stock market crash, the GFC and the fastest crash on record, Covid19. On average one in five years has seen a market decline.

To better illustrate how markets behave over time the following chart demonstrates the average return over every five-year period since 1875:

I believe this is a telling chart and highlights the benefits of long term investing and not listening to the short term noise. Over a rolling eight year period there has been an average return of 120.4% and no occasions where the dividend and capital growth would have been negative.

In the short term, markets are volatile and worrying for those not focused on the long term. A great example from history is 2008.  The share market experienced its largest down and fell by more than 30% in the year for the first and only time.

If you panicked and sold during that crash you would have missed a 39% bounce in 2009 and a rise in eleven of the thirteen years to follow.

It is important to reiterate our investment philosophy.  Our philosophy is to invest for the long term and not listen to the short term noise.  Have a clear understanding of your objectives and construct an investment portfolio to help achieve these.  Use diversification as a tool and remain disciplined through the course.  Investments are deeply researched to ensure they blend well with each and they do what they say they will do.

I expect we will continue to experience high levels of volatility in share markets for the coming year.  Until we see resolution in Ukraine and reduction in the inflation figures. Good news will be met with a large rebound whereas poor news will see share prices sharply dealt with.  I have experienced these periods before and will again. We can be certain of one thing, the markets will improve and we will look back on this period as a relatively minor blip in this larger picture of market gains and declines.