Think about it. When are times ever ‘easy’? At the time of writing, we face inflation, COVID-19, wars, trade tensions, the ups and downs in interest
rates, currency exchange rates, and commodity prices.
On top of all that, there is the ever-evolving political, economic, and social instability around
the world. It only makes sense to say that ‘uncertainties’ is a certainty in present times.
So, is it still relevant to be investing in uncertain times?
Well, it depends. Some may react by not investing altogether. But that approach is likened to an ostrich burying its head in sand. It is impractical. Today, the awareness to invest has largely increased among the general public.
However, investors may lack a plan to navigate their investments through the stormy seas of the markets today.
Here, I have observed two different approaches to navigating the market and investing in uncertain times. They resulted from having a different mindset towards investing.
Let me explain:
Approach 1: Market Predictions
This refers to investors who believe that wealth is about having more money. To them, if they invest in an investment, be it stocks, properties, ETFs, cryptos, so on and so forth, and its price had appreciated, they will consider it to be a good investment.
If its price had fallen, it would be deemed as a failure. Thus, it is common for them to measure investment success based on the following:
Price Goes Up = Good Investment
Price Comes Down = Bad Investment
Hence, they tend to invest during good times, as prices of investments tend to rise in line with heightening optimism. Also, they would avoid investing in uncertain times due to falling investment prices. Some would sell off investments as they have a pessimistic outlook on the future.
In extreme cases, this could lead to manias and panics in the investment markets. Basically, their guiding principle is to buy in good times, sell in bad times.
So, how do they know where the market is heading in the future?
Well, the answer is to try predict the markets. Many would speculate. Some will be checking on the macros and technicalities if they are more sophisticated.
Generally speaking, they are always trying to find the ‘best time’ to invest or to dispose of their investments. To me, that is trading or speculating.
If you are in this group, you will always be anticipating if today or tomorrow may be a ‘better time’ to invest. Even after you have invested, you would always want to find out when would be the ‘best time’ for you to sell off your investments.
That is not my approach when it comes to investing in uncertain times.
Approach 2: Income Productivity
Unlike the aforementioned approach, this group of investors believe that wealth is about owning assets that are income-productive. Thus, the measure of investment success would be based on the income productivity of the assets.
The more income they produce over time, the more successful the investment.
Income Rises Over Time = Good Investment
Income Falls Over Time = Bad Investment
For this group of investors, they are focused on the assets’ fundamental quality. They want to know if the asset can generate more income in good and bad times.
To them, it does not matter if the stock market, the economy, the Ringgit and the interest rates are going up or down. What matters is this: Is the asset in consideration profitable and sustainable in all economic conditions, particularly in tough times?
By focusing on income productivity, this group of investors would tend to invest differently from the market predictors. Normally, in good times when asset prices are rising, this group of investors would have difficulty in finding income productive assets that are offered at attractive valuation.
Thus, they invest less in good times. This would be different in tough times when asset prices are falling. In this situation, this group of investors will have an easier time acquiring such assets at discounted prices. So, they invest more in bad times.
Therefore: “The answer lies in your belief system when it comes to investing in uncertain times.”
Buy Less / Don’t Buy = Good Times
Buy More = Bad Times
If you are in this group, you would have less tendency to do market predictions. Instead, your focus is on the asset’s fundamental qualities and its valuation, which makes predicting market movements irrelevant.
So, should you be investing in uncertain times?
The answer lies in your belief system when it comes to investing. As for myself, my interest is in the accumulation of fundamentally strong stocks, if they are offered at attractive valuations. This is because I believe wealth is about the income productivity of my assets and thus I had invested accordingly.
If your beliefs on wealth are different from mine, you would invest differently. Ultimately, it is up to you to be navigating the market and be smart when it comes to investing in uncertain times.
About the Author
Ian Tai, Financial Content Machine. Dividend Investor. Produced 200+ Financial Articles featured in KCLau.com in Malaysia. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.