Editor’s Letter – Mar/Apr 2023
Over the years, financial market commentators have likened rapid swings by using the analogy of a fish swimming in shoals. The startled, flurried movement of one little anchovy can send millions of anchovies in the other direction on a dime. Anchovy shoals off the coast of California can get up to 100 million fish, by the way (I take the research behind these letters very seriously). And in many ways, this analogy is a good one. It gives a nice visual representation of how seemingly random shifts in the market can especially be amplified by high-frequency trading and vehicles like risk-on / risk-off ETFs. At the same time though, it kind of undermines the element of collective intelligence at play here.
I have to thank Chris Smith from CMC Markets for my rabbit hole journey into the migratory movements of little fish. In this issue’s interview, he talks about the market as a reflection of the fact that the economy tends to be six months ahead. It factors in things like expected interest rate movements, associated policy, consumer sentiment and all of the other variables that go towards economic factors. What is notable about this is that even though we are currently bombarded by enough hawkish messages from the Reserve Bank as it works the interest rate lever, headlines about recession, inflation, declining property markets, and mortgagee sales to trigger daily anxiety attacks, the market, as this collective intelligence, is taking a more pragmatic view of the situation and actually looking up.
There’s little doubt that the sugar rush is over and there will be some tough times for people, but maybe it’s just not the kind of carnage that the headlines suggest. There are also of course opportunities for future wealth-defining investments in times like this. And maybe as weather events have reminded us lately, money is only one factor to wealth. So remember to take the time to keep enjoying precious moments with friends and family along the way as part of a diversified investment strategy. Maybe a spot of fishing.
