The latest episode of Outperformance Matters, featuring Stephen Yiu, takes a close look at how to prepare for and manage market downturns.
After an opening discussion on Gold and how the investment thesis around the precious metal has evolved since the election of Donald Trump as US President, the conversation turns to what investors should be doing when there is a sudden drop in the value of your holdings.
The key points covered include, understanding whether the drop is just normal volatility or the sign of something more important happening and the importance of doing your homework to understand which sectors are likely to be more resilient or bounce back faster after a sudden shock.
The podcast acknowledges that most investors are not stock pickers but invest in tracker funds and ETF’s which move in line with the overall market. Protecting yourself in downturns therefore requires a diversified portfolio which does not leave you overly exposed to one index or sector.
It is also important for investors to prepare themselves mentally for downturns when their wealth declines. This can be an emotionally difficult period especially when people have worked hard for the money they are investing. Being aware of what is happening and being able to stay calm and take the long view can go a long way to managing the situations and not taking decisions too quickly.
As with all episodes of Outperformance Matters, the concluding section looks a myth in the world of investing. This time the topic was investment styles adopted by fund managers who specialise in ‘value’ or ‘growth’. While this has been a mainstay of the industry, for active managers to be successful and to justify their fees, they need to adapt to what is happening in the market. Investing should be about winning, not style.
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