Mastering market mindset: Sean Peche on navigating volatility and avoiding investment pitfalls

*This content is supplied by Sean Peche, Portfolio Manager at Ranmore Fund Management Ltd

First appeared on LinkedIn

Sean Peche’s insightful analysis delves into the investor psyche during market downturns. He explores the pitfalls of market timing and the psychological ‘anchors’ that hinder effective decision-making. Peche avoids panic selling during volatility, highlighting the missed opportunities as markets rebound. He seeks value in less expensive sectors and emphasises the importance of making difficult decisions in investing to avoid the traps of greed and inaction.

Imagine someone who panicked after seeing the 3-month, -9.6% pullback and redeemed from their equity funds at the end of last month.

Perhaps they were worried about the following:

The wars raging in the Middle East and Europe,
An imminent recession
The seasonally tough time of year,

And knew they could get 5% in a money market fund, so thought.

Why bother with all this volatility?

Well, I’ll tell you why they should “bother”.

Because there aren’t any billionaires who got rich from cash savings accounts.

And, less than a month later, it seems they’ve left nearly 9% on the table,

Equal to TWO years of money market returns!

Now, I can’t blame them for knowing those risks, they aren’t alone,

But that’s just it.

If YOU know the risks, maybe EVERYONE knows the risks, and then …

It May be already in the price.

But now imagine their dilemma when those risks change/subside.

Because they will “anchor” to their selling price.

Meaning they’ll stay uninvested when it’s higher.

And probably won’t buy when it’s lower.

Do you know why?

Why?

Because bears ALWAYS think it’s still got more to fall.

And then when it bottoms and rallies, they won’t buy either.

Why?

Because they’ll have missed the bottom, which will be a new “anchor.”

And that’s the problem with market timing – you have to get EVERY decision perfect, or you get anchors.

Think about it, you can:

Sell too early or sell too late.

And

Buy too early or buy too late.

Now, what are the odds of part-time participants getting EVERY call right when professionals glued to their Bloomberg screens for 18 hours a day can’t even nail it consistently?

And I’m not talking about people who have their “finger on the pulse”, I’m talking about professionals who are “wired to a market ECG!”

Yes, but the market is expensive.

I know, but then DON’T BUY THE MARKET.

Maybe find a Value fund with a high “Active Share” that looks nothing like the market.

That way, at least, you stay invested but NOT in the expensive stuff.

How did you feel in 2022 when Growth collapsed?

I was irritated that I hadn’t taken at least SOME profits and switched to Value – I KNEW it was expensive.

Like now?

Yes.

Ok, now that it’s rallied, how do you feel about switching now?

I’m hesitant, just in case the Magnificent Seven continues being … Magnificent …

Yes, that might be the case…

Well, I’ve learned you have to do what feels difficult.

And when you get an “opportunity” aka a “get-out-of-jail-free-card”, you better act fast.

Or Greed and the Anchors will drag you down.

Disclaimer:

Ranmore Fund Management Ltd is authorised and regulated by the UK’s Financial Conduct Authority
The content of this marketing material is provided for information purposes only. It does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, shares, units of other interests in investments.
Past performance does not predict future returns.