Mindset and markets

Investing can often seem like a daunting task, particularly with all the sensationalist headlines that we are prone to seeing in the 21st century. Whilst having a sound understanding of the share market, risk metrics and economic trends is undoubtedly important, it is often the psychological aspect of investing that can determine an individual’s level of success.

In this article, I’ll delve into a few key mindsets that l find helpful when navigating through ‘uncertainty’ in share markets.

The odds are rigged in your favour

13th-century poet Rumi is famously quoted as saying ‘live life as if everything is rigged in your favour’ and as an optimist, I interpret this as being grateful when things ‘go well’ and being willing to learn when the reality is different from your expectations.

Now how does this relate to investing in share markets you ask…? Well, when you invest in the share market for the long term and adopt a diversified, evidence-based approach… the odds are rigged in your favour.

On average the Australian share market has a positive return in three out of every four years, and the magnitude of the returns in the ‘up’ years is greater than in the ‘down’ years. When you extrapolate this out over the long term, you get an annualised return of around 11% for the Australian share market.

Whilst there will inevitably be rises and falls throughout time, a disciplined investor will look beyond the concerns of today, as they know that the odds are rigged in their favour.

Nothing is ever as good or as bad as it seems

Life is full of ups and downs. Achievements and disappointments. Growth and learning opportunities.

As human beings, we are prone to becoming overconfident when things are going well and pessimistic when difficult experiences arise. However, adopting a more balanced perspective encourages us to remain humble during the good times and see the opportunities for growth during difficult times.

Investing in share markets is no different.

There will always be something in the world press to suggest that it is all doom and gloom or that it isn’t a good time to be investing (just think back to all the headlines you’ve seen in the last 18 months).

On the other end of the spectrum, blind optimism, speculation, and naivety can be just as detrimental (think the subprime mortgage crisis that led to the Global Financial Crisis).

However, when we look back over the past 50 years, having endured 20+ significant crises in financial markets, the patient investor has been rewarded for their discipline and for not overreacting (to the good or the bad).

Control the controllable

Everyone is affected by overthinking and the associated stress and anxiety it brings at some point in their lives. Most of the time this is caused by forces outside of our control.

Investors often get lured into this trap as well… ‘what if the market crashes’, ‘what if we have a recession’, ‘what if XYZ company goes bankrupt’.

Focusing on what you can control is a helpful way to avoid getting stuck in these negative mindsets and worrying about something that you can’t change.

So what can you control in the context of investing? Your investment strategy, your asset allocation and your emotions.

Disciplined investors who put in place a long-term plan that is built around their goals, tolerance for risk and liquidity requirements will always be rewarded in the long term.

Whilst we are all prone to getting swept up in headlines or stories that we hear on the news, the next time you feel yourself going down this path, try adopting one of the mindsets outlined above.

If you have any comments or questions about this article, our advisers are always happy to help. Please email us at ask@capital-partners.com.au.


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