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14 December, 2018

Coping With Uncertainty

The investment philosophy at Walden Capital is predicated on the fundamental axiom that returns come from the application of risk to invested capital within markets.  However it is important to choose the right risks.  This important distinction makes it easy to look at the types of risk one is exposed to, and wonder whether it is possible to eliminate some risk, without eliminating the sources of returns. 

One such risk is the uncertainty we are all exposed to on a daily basis through news in the media.  It seems as if there must be some secret formula for coping with whether Donald Trump will say something exciting on Twitter which will cause a furore and move markets, or whether an important vote on Brexit will be won, lost, or completely dodged, causing consternation in share prices.  But there isn't. 

We are all at the mercy of events, and have always been, and it will always be so.  Learning to deal with uncertainty is an important skill when investing, as academic evidence shows that staying invested through uncertain times will result in a greater chance of a positive outcome than trying to react, or worse still, predict future events, and the market reactions to them.

In this useful artice from Dimensional Fund Advisers we examine a few historic examples of what might have happened if one had stayed invested through tumultous times for the longer term, and once again learn that the skill in investing is not trying to time the markets, but spending time in the markets.

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by John Stirling


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