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SIMON BROWN: I’m chatting now with Mark MacSymon, a wealth manager at Private Client Holdings. Mark, appreciate the early morning time. Market volatility – in a recent piece you put out you talk around the sort of prices of admission to the investment system. In essence, volatility is a feature, it’s not a bug. Notwithstanding, as investors we seriously dislike it and we struggle with that volatility.
MARK MACSYMON: Yes, good morning Simon and good morning to your listeners. I think investors have had to deal with a fair amount over the last five or six years. The Covid pandemic seems like it was just yesterday. Then we had the polycrisis in 2022, Trump’s Liberation Day last year, and this year we have had to deal with the US-Iran war.
These market events have been characterised by fairly steep drawdowns and, I guess, fairly swift recoveries.
But we’re exposed to market movements constantly now. Twenty years ago clients saw a quarterly statement, and today they can check their portfolios every hour on their phone.
And in Gloria Mark’s ‘attention span’ she highlights that adult attention spans have declined by roughly two-thirds. That matters, because investing requires patience. Yet the world increasingly rewards immediacy. The average holding period of equities has fallen dramatically over the decades.
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SIMON BROWN: Two points around that – sorry to jump in. It’s really a great point. I hadn’t thought about it. Back in the day I used to check the market performance with the morning newspaper. Literally, that was it. I’m thinking the crash of ’87 maybe made the lunchtime news, but it was a once-a-day process. And for many people it was not even once a day. It was less frequent. Now it is on my phone 24/7. That’s stressing me.
MARK MACSYMON: Yes, absolutely. Investors have all of this data, all of this information at their fingertips. We see it with clients. There are certain clients that will check information very regularly if not, as I said, multiple times on a daily basis.
When you think about it, over the years the average holding period of equities has fallen dramatically, as I mentioned earlier. Investing is a patience game.
The reality is that there are market movements out there, while high-frequency machine trading, algorithmic trading and systematic trading almost amplify the short-term noise.
And then there is some really fascinating behavioural research at the moment which shows that the more often people observe their investments, the more volatility they perceive and the more emotionally uncomfortable it becomes – which ultimately leads to poor long-term decision making.
Behavioural scientists effectively call this ‘thin slicing’. But then when we add social media, 24-hour financial news, instant commentary, it all creates a sense of urgency. But at the end of the day not every market move deserves action.
Read: Financial behaviour – Part 11: Framing bias – How information is presented can mislead you
SIMON BROWN: I agree. I would wager that most market moves don’t deserve action and that for the average investor we are better served looking at the market less. We think it’s giving us an edge.
We’re actually better putting the phone down, turning it off and going back to that quarterly statement, or annual statement.
MARK MACSYMON: Yes, 100%. At the end of the day we’re all human and we’re all exposed to, I guess, a degree of discomfort, especially when it comes to money. Money is an emotional aspect for most people.
And there’s this behavioural bias and it’s a horrible one because it’s asymmetric. It’s not a perfect trade-off. It’s an asymmetric trade-off. It’s called ‘loss aversion’.
What it means is that for many people losing R100 000 hurts emotionally far more than gaining R100 000 feels good.
So when markets fall sharply, selling feels like taking control. But emotionally comforting decisions are often financially damaging. So many people have this inclination and sell off the declines and reinvest after recoveries. In effect what they’re doing is buying high and selling low.
Read: Fear of losses vs ecstasy of gains: How this affects your investment decisions
SIMON BROWN: Yes. This is a point I’ve made before on this show – that for the advisor the biggest point of value from a wealth manager is that kind of keeping me on the straight and narrow. It is stopping me doing things, perhaps more than anything.
MARK MACSYMON: And I think that changes over time. So it’s not always the case. During calm periods structuring asset allocation, investment selection matters.
But during volatile periods – those events which I mentioned earlier – we focus on helping clients stay disciplined; and that often matters more. So in difficult markets we become part strategist, part behavioural coach, part emotional sounding board.
I guess I’m less interested in predicting the next correction, because I can’t, than helping clients prepare for one when it arrives.
Read: In times of uncertainty, advice is the system that holds
There’s a lot of good communication that takes place during those, let’s say, more volatile periods. And the communication with clients is not about when there will be a recession or when there will be a downturn. It’s how do we respond? How do we react? How do we behave when it does happen?
And then, it’s crucially important to set expectations around volatility. Most portfolios are – let’s take a multi-managed sort of high-equity fund, for example. Four or five months during the year that fund is going to be down. The other six or seven times it’s going to be up. But just giving an idea of that risk/return signature is incredibly important.
SIMON BROWN: Absolutely. And it’s hard to respond. We know it will happen. We don’t know when it will happen, but we can learn how to respond as markets fall, because they do. They spend more time going up than down, but they spend a lot of time going down as well.
We’ll leave it there. Mark MacSymon, wealth manager at Private Client Holdings, appreciate the early morning time.
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