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Autumn - also in the financial markets



While the days get shorter, the evenings darker, and the autumn storms set in, it is important to remember that winter contains some beautiful days and spring is just around the corner. Just like the time of year we are in, it has also become somewhat turbulent on the world's financial markets. While some people think that the war in Ukraine and its possible consequences are the most frightening thing in the news, it is probably interest rates and inflation that trouble the financial markets the most. This type of turbulence is just as unpleasant every time, but we must remind ourselves that it is completely normal, and a natural consequence of the liquid financial market continuously pricing in changes in the world. After working with this for close to 30 years, I have experienced that every time we encounter this type of turbulence, there are many people who think that "it is different this time". That is at best only partially correct, as there are no events and situations that are exactly like another in history. But, it is still a fact that the world has gone through many wars, politically tense situations, commodity crises and recessions before. And each time the world has prevailed, people return to work, companies continue to make money and the stock markets turn around long before you think.


While the prices of investment grade bonds have fallen 20% so far this year, the global stock market has fallen close to 30%. We started adapting our portfolios to changing market conditions already 1-2 years ago. We have gradually shifted towards short-term Norwegian interest rates on the bond side, and we have made many changes on the equity side, e.g. in favor of Norway and dividend-oriented companies. In addition to the fact that we have made a conscious strategy of being open on currency exposure on the equity side, these measures have so far proven to have had a very good effect. The drawdown in our portfolios has so far been less than half of the market. This proves to us that our strategy works and is in line with our desire to deliver a good risk-adjusted return. But what do we think going forward? It is difficult to predict, they say, especially about the future. We will therefore refrain from predicting, but rather continue to manage the portfolios as we find prudent. There is relatively little doubt that the world is facing tougher times, probably with somewhat increased unemployment, increased interest rates, increased inflation, etc. The news picture is characterized by this, and many are now coming forward and pointing out that it will get worse before it gets better. We do not necessarily disagree with this, but it is important to remember that this is what the financial markets try to price in on a daily basis. It is this economic picture that is the main reason why the world's stock markets have already fallen close to 30%. That doesn't mean it can't fall further, but it does mean that much of the fall has already happened and trying to pinpoint the bottom has proven to be a very difficult exercise. For those of us who had investments through the corona crisis, you may remember that the stock market fell 35% in a month and a half. The stock market bottomed on March 23, 2020, while the news picture was at its worst, the vaccine was barely thought of, economies around the world were more or less shut down, and the peak of infection was not reached until 2 years later. In August of the same year (2020), the stock market was back to where it was before it fell. Now, I don't want to say that the stock market will come back up as quickly after this downturn, but the point is that timing the bottom based on gut feeling or the news picture is an exercise that even the most professional and experienced do not undertake.


Given that the background for the current downturn is mainly based on inflation, interest rates and the economic slowdown, we believe it is reasonable to expect that it will take some time to work this through. That does not mean that we haven't already seen the bottom, we wouldn't know, but there is reason to expect that the market may be somewhat turbulent for a while longer. Having said that, we know that the investor community has a lot of liquidity, and an inherent basic attitude to look for growth. This should mean that the slightest sign of turning economic parameters could spark a sharp rebound in equity and bond prices.

The most important thing for an investor when we go through periods like this is to have a sensible investment strategy. Our tips for a sensible strategy follow the following principles;

  1. Have cash, liquid assets, and/or financial flexibility to be able to cover anticipated and unforeseen financial needs for the next 2 years.

  2. Have relatively safe and liquid investments to be able to cover anticipated and unforeseen financial needs for the following 3 years.

  3. Have a minimum 5-year time horizon for investments where you want a higher return and hence a higher risk.

  4. Points 2 and 3 can be combined in the form of a portfolio with a reduced risk profile.

  5. For capital that you still want or need to invest, you should have an investment strategy where you periodically (or according to certain rules/criteria) invest through a turbulent market.

An investor's worst enemy is himself. This saying means that we as humans allow ourselves to be ruled by emotions, which works very poorly for investment purposes. This means that when the stock markets fall, we have an emotional desire to sell, while a rational person should do the opposite. This is perhaps the most important reason why private investors do not manage to get as good a return as the stock market/index, and perhaps the most important reason why it can pay to have a good adviser - a professional partner. We are ready to answer your questions and help you with a sensible savings and investment plan. Feel free to follow our posts, videos and webinar recordings on our blog: Blogg meny | Norge | Noon Invest Norge (noon-invest.no)

Feel free to participate in our monthly webinars: Påmelding | Norge | Noon Invest Norge (noon-invest.no)

And/or contact us for a direct chat with one of our advisers: Kontakt Oss | Noon Invest Norge (noon-invest.no)



“We think about your investments all day so that you don't have to at night»



Mvh,

Even Krohn-Pettersen


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