What did the past two days' events in Ukraine teach us?
What is happening between Russia and Ukraine is dramatic. While attacking a country in 2022 is humanly unacceptable, we must also use this situation to draw conclusions when it comes to investing.
Hello everyone,
I haven’t been writing for a long time, but I’m hoping you are still here and that my mail won’t end up in your spams :)
I will try to use the saddening situation in Ukraine, to lay out big mistakes to avoid when it comes to personal finance and investing.
Diversification is key
Over Wednesday night, the Russian Stock Index (IMOEX) dropped 35%.
In other words, all the companies composing the index lost 35% in value overnight!
Bim ! Back to 1st January 2019 in a blink of an eye. A little bit more than 3 years of valuation gone.
What if you were a Russian, heavily tilted towards the economy of your home country?
What if you were an international investor, who believed that the Russian economy was safe, and that nothing could happen to it?
What if you just retired on Thursday while owing 100% of IMOEX only?
You know the answer: if you had 1M on Wednesday, you would only end up with 650K on Thursday.
Back to looking for a job for few more years! Not ideal…
Does that sound like a smart move to be concentrated in a single country economy?
Not an isolated case
Some may disagree with me, but trust me, this is not an isolated case.
Betting on a single country economy is a very bad move.
How about the Nikkei (Japan) ?
1989: Peak at almost 39,000
2022: Still way behind at not even 30,000
What if you were one of those investor?
How about the CAC40 (France) ?
Whoever invested in 2000 or 2008 was only able to recover his/her loss few months ago in 2021.
In other words, they had to wait for 13 or 21 years to finally make up for their loss!
What are the key takeaways?
This delicate situation is once again teaching us a lesson, especially about ourselves:
On Thursday, my takeaways were as follows:
We can’t trust the market on the short term.
Timing the market is impossible.
Those who say they can, are liars. Who could have predicted that Russian troops will invade Ukraine on this very specific day?
Those who say they can’t, are realistic.
It shows us that diversification is key
Being concentrated in one country only is going straight against the wall
But it got totally different on Friday:
The Russian index bounced back +20% ! Was the war over? Of course not!
Yet, we saw something really unexpected with this rebound. What does that teach us?
The market is crazy. We are the market, so we are crazy.
The market is irrational. We are the market, so we are irrational.
The market is unpredictable. We are the market, so we are unpredictable.
People’s attention span is only few hours, even after a dramatic event, then we move on at lightning speed looking for the next big thing.
Timing the market is impossible.
Those who say they can, are liars. Who could have predicted that the market will rally back 20%, on the next day, while the conflict is still happening?
Those who say they can’t, are realistic.
“In Buy-And-Hold We Trust”
Diversifying across countries, and diversifying across sectors, is key.
But you won’t be a successful investor if you keep on buying, selling, and buying, and selling. Market timing is impossible. And daily trading is costly!
I’m invested/investing for the long run. I’ve been heavily invested in the stock market for the past 4 years, through ups and downs, through thick and thin.
Never ever have I sold a single share. Instead, I keep stashing, stuffing, as much $$$ as I can every month, and it’s paying off, even only 4 years later.
Back to +54% profits after 47 months in the stock market
Needless to say that both January and February 2022 are eating up a lot of my profits, but hey remember that we are in the stock market for the next 30, 40 years ?
Cumulated Return in %
“I disagree with you. Look at the S&P 500: it tracks 500 of the largest U.S. companies and yet, it’s a cash machine while only betting on the US economy”
Yes, I agree with you, but when will that last until? What tells you that the USA will be successful for the next 10, 20 or 30 years?
What if it suddenly gets overtaken by China? India? Or any other Emerging Market countries (e.g. Brasil, Indonesia) ?
The most concrete and probable example could be a war between these US and China. In that case, I hope not to be only invested in either one of this two countries.
Diversification is key!
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