Reacting to news

If you looked at a news.com.au headline at 10.52am on Monday morning, this is what you would have been confronted with…

The media needs you to keep looking at their content to stay in business and unfortunately nothing sells better than bad news.  It’s difficult to take the emotion out of investing especially when your money is affected.  It’s important to stay rational when the media is feeding you headlines that are irrational.

If we think back to our last two major downturns, Covid and the Global Financial Crisis, there would have been points during those events where there was uncertainty and even despair, but now with the benefit of hindsight we look back with the knowledge that markets survived that turmoil.

There is always a different reason for a market downturn.  Nobody knows how this current event plays out, but many people are paid to have an opinion and share it with you.

The following graph illustrates the annual returns produced by the ASX/300 (the Australian share market) for the period 2001 to 2023.  The solid bars show the return for each year and the dotted lines leading to the red dots illustrate how far the market fell at some stage during that year.

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If you look at 2020 as an example, the return for the year was 2%.  To receive that return, at some point in that year the market declined -36%. That was the Covid “plunge”.  If you sold, you wouldn’t have received that return and been stuck with the difficult decision of when to buy back in.

If you look at 2023, to receive a 12% return, you had to endure a -8% drop that the media attributed to “fears of a recession due to the Federal Reserve keeping interest rates too high for too long”.

Here’s what those two years look like on a graph.

One of the best features of the share market is that it’s easy to buy or sell large or small parcels of your investments between 10am and 4pm every business day.  It’s also one of the worst features.

With every crisis, the market provides you the opportunity to sell and the media provides you all the reasons why it makes sense.  We hear from clients regularly, “I feel like I need to do something”, but history would suggest that staying disciplined and diversified is usually the best course of action unless you possess magical abilities to know what happens next.

As always, if you are feeling concerned and want to discuss your investments, please don’t hesitate to contact us.

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Simon Gabbie

Robert Berens

April 11, 2025