The Garrulous Jay – Easy Options

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The events unfolding in Ukraine are as deeply saddening as they are concerning. Just two days into the conflict it is evidently impossible to see how it will develop and ultimately conclude. At such times human nature may incline us towards “easy options”, choices which would almost certainly be wrong.

It is easier to imagine a ‘worst case’ scenario than it is to imagine a less extreme outcome. Worst case scenarios allow for less doubt than the myriad alternatives, with all of their complexities and permutations. A craving for certainty therefore runs the risk of magnifying our concerns.

Similarly, it is easier to articulate a very bad outcome than one with less dramatic consequences. The world will forgive or forget those whose predictions turn out to be excessively pessimistic. Conversely, there is little forgiveness for the Pollyanna’s who have their optimistic expectations dashed by reality. I think the media are implicitly aware of this, with or without their need to fill their pages and airtime with content in an age of online instant access and global reach.

To be clear, the observations above are in no way intended to downplay or belittle the potentially profound consequences of Putin’s disastrous decision to invade Ukraine, but they provide context to the points that follow.

It is, or feels like it is, easier to do something rather than to do nothing at times of crisis. We are hard-wired by a sense of self-preservation to want to act. Witness the panic buying we saw in the spring of 2020 when the first wave of Covid-19 crossed the world.

And yet time and again it has been shown that from the perspective of investing this is the wrong thing to do. One needs to resist the temptation to protect what one has and retreat from the markets, and to remember that events such as these should not affect a pre-agreed risk appetite or investment time horizon.

The decision to sell presupposes one will be able to identify the right time to buy again, and yet none of us have that crystal ball.

It is easier, when markets are falling, to focus on recent losses rather than on long-term gains. Since the 3rd January this year the S&P500 index has fallen over 10%, but it has risen 56% since the 5th January 2018. It is important to remain focused on the long-term, especially when markets are falling and volatile, and it should always be remembered that a loss is not a loss until you sell.

My thoughts are with the people of Ukraine and my hopes are for a swift resolution to the current conflict. It would have been easier for me to write about something else this week, but I think it would have been wrong to let current events pass without comment.