This could be a recipe for potential disappointment. Whenever momentum carries the price of an individual stock well beyond any reasonable estimate of the intrinsic value of the underlying business, the declines in value can be very swift and severe. The same applies to indices.
Only time will tell if the recent market volatility is just routine turbulence or the start of something more ominous.
Either way, it was clearly a stern warning that stocks can still go down as well as up and a reminder to think carefully about risk if your clients haven’t already.
Investors should resist the urge to attempt any Johnny Sexton-like moves with their money and instead think about the hours and hours of preparation and practice that allowed him, and the Irish team, to perform under pressure.
Focus on drip-feeding money into the market on a regular and frequent basis in order to take the emotion and stress out of the process.
And encourage clients to maintain a healthy cash buffer so they are not forced to sell into market panics and can perhaps take calculated risks when conditions are extreme.
None of that advice is very exciting, but that’s precisely the point. It shouldn’t be.
Dan Brocklebank is head of UK at Orbis Investments
