Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
From 2019 we learnt that the market was becoming more and more volatile with social media playing a critical role in the instantaneous movements in global markets. In recent days, we have seen the ongoing events of the US-Iranian conflict that has sparked global attention. Fears of a full-blown war have manifested a landslide on futures today, opening 110 points lower as well as European and Asian markets sharply declining. The main contributor to this landslide is the unknown and unfolding situation in Iran causing investors to move assets into safe-havens such as Gold. The situation as of now, is not indicating a full-blown war and many believe that it may seize in the coming weeks. Markets have slightly recovered this afternoon with no announcement of retaliation from the US Government, however this could change by tomorrow.
A quote I hear often is that nowadays “everyone is an investor” and this simply means a lot of unexperienced traders are basing their investments on fear. In my opinion, the best investors such as Warren Buffet will use his expertise to understand how the business will make money and how much cash-flow they will need ect. Investing/shorting against Futures should be done by experienced professionals that can handle a loss. After studying economics, the most fascinating aspect personally was how peoples behaviours will dictate the economy and therefore the markets. A great read is “misbehaving” written by Richard Thaler, which entails how human decisions based on psychological, cognitive and emotion are not rational. It shows that we cannot predict human behaviour because we don’t act in rational ways when we are challenged by a loss of money for example.
Some investors will be able to predict some market movements with a general idea on the way markets have reacted in previous decades. We have seen markets recover from events such as the GFC and 9/11 as well as the fallout with China and the US. However, there is a space in between these events which separate many investors. Whether a person is an optimizer (perfect market) or they are rationally affected by emotions such as fear. In a perfect market, traders would be 100% efficient and make decisions based off pure mathematical and financial data. However, we will never live in a perfect market and smart investors will capitalise off other traders fear. A prime example is a movie I am sure alot of you have seen; “The Big Short” which follows a handful of investors that predicted the GFC off pure logical data, while everyone chose not believe that the banks we trust have been handing out subprime loans to everyday people for decades.
So from all historical data, there is no logical reason to panic as markets have always bounced back. However, we live in a time frame that is so fundamentally driven by technology that delivers instantaneous access to the markets as well as Global news, it would not be logical to say you could completely predict the outcome of the US-Iran conflict. 20 years ago, investing was not easily attainable and arguably markets shed less vulnerability and volatility. Whether a war does take place or not, we are currently in a historic moment that investors will look back on to predict future conflict.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written Tyger Fitzpatrick, founder of YIG.