Jim Parker's Coffee Break: Dealing with Volatility

Coffee Break: Dealing with Volatility Financial markets have become a little more volatile recently. Looking for a cause, commentators variously cite US-China trade tensions or Brexit or interest rate uncertainty. Whatever the reason, these can be challenging times for investors. While it’s pointless to speculate, one thing is certain: Constantly checking the news can make it even harder to withstand volatility. In Coffee Break this week, we share some useful long-term perspectives on dealing with the ups and downs. Shooting Yourself in the Foot Survey after survey find the evidence is clear. Most people, in trying to avoid the effects of market volatility, tend to make it worse for themselves. They buy high, sell low, lose money in trading costs, and take more risk than they need to. In fact, most people don’t even get the capital market rate of return. Doing well as a long-term investor often boils down to avoiding doing something stupid, particularly when markets are volatile. https://nyti.ms/2GLRCAq The View from a Nobel Laureate If there is anyone worth listening to on how markets work, it’s Nobel Prize-winning financial economist Eugene Fama. Known for his work on how hard it is to outguess the market, Fama says while volatility can be unsettling, the best approach is to stay focused on your long-term goals. Check out this short video. Unnerved by the volatility in markets? Most people would be better off if they just didn’t look at the news, says Nobel laureate. http://bit.ly/2GMoCZv Seven Simple Lessons Increasing market volatility is essentially an expression of uncertainty. But unless you have information that no-one else is privy to, you are unlikely to get an edge by trying to time your entry and exit points. For those still anxious, Jim Parker provides seven simple lessons to help you live through the volatility: Unnerved by financial market volatility? Here are seven simple lessons to keep in mind during the tough times. DFA Australia Limited    Level 43, 1 Macquarie Place Sydney NSW 2000 Australia    T +61 2 8336 7100 View Online      au.dimensional.com This section may provide links to the sites of independent third parties which contain information, articles and other material prepared by persons who are not employees or representatives of DFA Australia. These links are for your convenience only. These third parties are not affiliated with DFA Australia, and DFA Australia does not control or endorse and is not responsible for any information, opinions, representations or offers on these linked sites. DFA Australia is not responsible for the contents or accuracy of this material, and the opinions expressed in this material should not be taken to be the opinions of DFA Australia.

Coffee Break: Avoiding Stupidity

Jim Parker, from DFA Australia Limited, shares some more useful insights and links:

Coffee Break: Avoiding Stupidity It’s often overlooked, but the difference between having a successful investment experience and an unsuccessful one often comes down not so much to acts of brilliance but to avoiding acts of stupidity. Coffee Break this week, drawing on the findings of behavioural finance, looks at why simple discipline and avoiding rash decisions can be so important to improving your chances of a good investment outcome. Stop Relying on Brilliance One of the most popular quotes from Charlie Munger, the long-term partner of legendary investor Warren Buffett, is that it is remarkable how much advantage he and Buffett have achieved by consistently trying not to be stupid instead of seeking to be smart. This article from the blog Farnam St explains the difference. It’s nice to be brilliant, but often the best thing you can do as an investor is just avoiding doing stupid things. http://bit.ly/2M0obiZ Why Smart People Make Dumb Mistakes Feelings and hunches are usually not a good guide to long-term investment decisions. We tend to over-rate our own competence and give too much weight to recent events. This blog post from Psychology Today lists eight common behavioural biases behind dumb money decisions. Why do smart people make dumb mistakes with their money? Here are eight common behavioural biases. http://bit.ly/2WrHu9e Why Do We Make Stupid Investment Decisions? Although markets are awash with randomness, there are vital and often simple cues that investors choose to ignore. A common one is overlooking signal for noise. In other words, people get distracted by headlines and miss the long-term returns available through discipline. Here are eight reasons stupidity is so common. What are the major factors driving stupid investment decisions? Here are eight common reasons people go astray. http://bit.ly/2HTcatN au.dimensional.com This section may provide links to the sites of independent third parties which contain information, articles and other material prepared by persons who are not employees or representatives of DFA Australia. These links are for your convenience only. These third parties are not affiliated with DFA Australia, and DFA Australia does not control or endorse and is not responsible for any information, opinions, representations or offers on these linked sites. DFA Australia is not responsible for the contents or accuracy of this material, and the opinions expressed in this material should not be taken to be the opinions of DFA Australia.

Coffee Break: The Crystal Ball Fallacy

Jim Parker, from DFA Australia Limited, shares some more wonderful insights and links:

As a new year begins, the financial media typically is full of speculative commentary about what the coming 12 months will hold for markets. The assumption underlying this content is that someone, somewhere has a reliable crystal ball. The truth, however, is that everyone is guessing. A few guesses turn out to be right. Most turn out to be wrong. And that’s because those making these forecasts fail to account for the random nature of events. Ultimately, it’s not a good way to invest.

Wrong, Random or Worse Everywhere you look at this time of the year, someone is telling you what stocks to buy in 2019, the chances of a recession, the likely path of interest rates and what will happen to currencies. These forecasts are really guesses and are often just a pitch to get you to trade. In fact, Barry Ritholtz sees forecasting as an exercise in futility. The problem with market forecasts goes beyond their inaccuracy. The real issue is their failure to recognise the randomness of the world. https://bloom.bg/2QBfQUf

The Market in Fear Have you noticed how much media commentary about the market outlook is gloomy? We’re told to brace for everything from meltdowns to depression. Part of this is economic, as research shows human beings are wired to give greater weight to bad news than good. This means there’s an in-built market for fear. Our in-built loss aversion makes us more likely to click on bad news headlines. Keep that in mind when you are confronted with 2019 ‘outlooks’. http://bit.ly/2RzZsDV

Separating Noise from Signal So much media commentary around markets is just noise. For example, at the start of every year you’ll see articles saying it’s now “a climate for stock pickers” or that “the rules have changed”. Veteran investor and fund manager David Booth has heard it all and provides a refreshing perspective on market forecasting. Market forecasts are ubiquitous around this time. But this veteran fund manager says most are just noise designed to get you to trade. http://bit.ly/2REnm1e

DFA Australia Limited 

This section may provide links to the sites of independent third parties which contain information, articles and other material prepared by persons who are not employees or representatives of DFA Australia. These links are for your convenience only. These third parties are not affiliated with DFA Australia, and DFA Australia does not control or endorse and is not responsible for any information, opinions, representations or offers on these linked sites. DFA Australia is not responsible for the contents or accuracy of this material, and the opinions expressed in this material should not be taken to be the opinions of DFA Australia.

Michele Scarponi, you are in our hearts...

Coffee Break: Lest We Forget In the face of constant 24/7 news headlines, reflective moments like those offered on Anzac Day each year remind us that the most significant things in life are not necessarily what happened in the last five minutes. A similar long-term focus is required in the world of investment, where our attention is constantly dragged from one instant headline to the next. That’s why taking a break from the news media can serve as a tonic for frayed nerves. Giving Up on News While news is a source of instant information, it rarely provides meaning. That comes from longer-term reflection and analysis and an awareness of slow-moving, but deeper, change. Indeed, this article suggests that taking a break from the instant hit of fast news can ease anxiety, promote insight and restore a long-term focus. The news isn’t just bad at the moment. It’s bad for you. So why not take a break? http://bit.ly/2ppfqme Get Your Life Back Have you ever calculated how many hours you spend scanning headlines on Facebook or watching financial news or getting grumpy reading about politics? This writer did and was shocked by the result. In this article, he argues you should see news mainly as entertainment geared to keep you watching so that it makes money. Depressed by the news? That’s the point. The aim of the media is to keep you watching. http://bit.ly/2oiT8Pj Quantity Vs Quality There is no shortage of instant information these days. The bigger question is over the quality of what’s on offer. The firehose of news and opinions about the news threaten to overwhelm many investors. In response, this writer suggests two responses—taking a historical view and filtering out the noise. Overwhelmed by news headlines? Take a broader view and filter out the daily noise. http://bit.ly/2pLC3xH

Coffee Break: Brexit Special

By Jim Parker, Vice President, DFA Australia Limited By virtue of necessity, the media works on a day-to-day horizon when covering financial markets. For most investors, though, the more important horizon is measured in a matter of years. Referendums like “Brexit”, elections and geopolitical events can look momentous if you assess them via the short-term market reaction. But taking a step back from the noise can also provide a much needed perspective. Years Not Days When markets fell heavily after the recent Brexit vote in the UK, one US advisor was awoken by a client shouting down the phone that the Dow was down 500 points. The advisor’s response is a classic case of the benefit of not fixating on daily moves in the indices. Day-to-day market moves may be interesting, but they may not be so important if your horizon is in years. http://nyti.ms/28ZEy9a Give Your Portfolio a Rest Brexit, China, oil, elections, negative interest rates….there seem to be plenty of news headlines to lose sleep over at the moment. So what do you do? As it turns out, the same rules of thumb we use to improve our own sleeping habits can be applied to our investment portfolios. With all the worrying news in the world, is your portfolio getting enough sleep? http://bit.ly/28Z6mJ0 Take a Deep Breath When markets are volatile, there can be an overwhelming urge to “do something”, but what exactly? There are as many opinions out there as there are portfolios. But what if you just took a deep breath and didn’t do a thing? This writer provides eight useful points of perspective. When markets are rocky, the immediate impulse is to “do something”. But there’s a better response. http://nyti.ms/293tHOA