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How to navigate market uncertainty without a ‘crystal ball’

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By Jessica Penny
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3 minute read

Market experts urge investors to approach their investment decisions with careful consideration during economic uncertainty.

Amid a seemingly continuous list of concerns surrounding investment markets, encompassing issues such as inflation, interest rates, and geopolitical issues, AMP’s Shane Oliver has suggested that this challenging environment could divert the attention of investors.

“It would be nice if the investment world was neat and predictable, but it’s well known for sucking investors in during good times and spitting them out during bad times,” Dr Oliver said.

“If anything, it’s getting harder reflecting a surge in the flow of information and opinion.”

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With this noise compounded by volatility in short-term returns, Dr Oliver has urged investors not to be swayed by the transient nature of the market cycle.

“Investment markets go through cyclical swings. All eventually set up their own reversal – e.g. as falls make shares cheap and low interest rates help them rebound.

“The trouble is that cycles can throw investors off a well thought out investment strategy that aims to take advantage of the power of compounding longer-term returns. But cycles also create opportunities.”

Referencing the 20-odd per cent share plunge seen across the US and Australia in October last year, he said this was just another cyclical swing after which markets rebounded.

“The key is not to get thrown off when markets plunge,” Dr Oliver said.

“Looking forward, the future is shrouded in uncertainty. And no-one has a perfect crystal ball.”

As such, he urged investors to embrace a long-term perspective and emphasised the challenges of short-term forecasting and the inherent uncertainty in future trends.

Moreover, the principles of diversification and simplicity take centrestage, according to Dr Oliver, alongside constructing a well-rounded portfolio and focusing on high-level asset allocation.

“Don’t put all your eggs in one basket. Having a well-diversified portfolio will provide a much smoother ride,” he explained.

The chief economist also underscored the timeless wisdom of buying low and selling high, cautioning against emotional reactions to market extremes.

“If it looks dodgy, hard to understand or has to be based on obscure valuation measures, then it’s best to stay away.”

Lastly, he said steering clear of the crowd mentality, particularly during market peaks or troughs, is key, as is the value of professional advice to navigate psychological traps.

Also offering wisdom to investors, DNR Capital’s Jamie Nicol said there are silver linings amid uncertainties, viewing them as opportunities to acquire stocks at appealing valuations.

While acknowledging the short-term risks posed by a high-interest-rate environment, which amplifies uncertainty about economic strength and corporate earnings, Mr Nicol suggested a forward-looking approach, urging investors to consider the long-term potential of quality companies currently facing market disfavour.

“Investors should look through the short term and think about what these companies are going to look like in three to five years,” he said.

“We see two sets of opportunities in this environment. Firstly, some great businesses are starting to derate, especially companies with defensive outlook.”

The other opportunity, Mr Nicol said, is related to stocks that are going to do well when interest rates peak.

“There are some cyclical stocks where the market’s really thinking through the cycle and worried about the downside side risk.

“This throws up opportunities if investors are prepared to look through the cycle a little bit,” he concluded.

How to navigate market uncertainty without a ‘crystal ball’

Market experts urge investors to approach their investment decisions with careful consideration during economic uncertainty.

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