In a sometimes neurotic financial world, smaller markets or events can heavily affect the value of bigger ones. So how do you identify value amidst the volatility?
In September this year when Graeme Wheeler, governor of the Reserve Bank of New Zealand, said his currency’s power against the US dollar was unjustified and unsustainable, it had the desired effect – the Kiwi dollar dropped 1.7%1 against the greenback. But his statement also had unforeseen effects.
The comments from the Kiwi banker caused a sell-off of the Australian dollar, bringing it down 0.9% against the US dollar. As often happens in the world’s financial markets, the tail was wagging the dog.
That same month, soon after announcing new iPhones and launching a refreshed mobile operating system, Apple released a software update known as iOS 8.0.1. It left many iPhones unable to make calls before a second update fixed the issues a few days later. What was a relatively minor glitch amidst a slew of major and positive announcements was enough to bring the share price down almost 3%2 in one day.
The financial markets appear to be more highly strung than ever. And their globally connected nature means a sniffle on the other side of the world can give your portfolio the flu, or at least a nasty cold.
So how do you look past these reactions and over-reactions to see the true value of a stock, a currency or some other form of investment?
First, it has to do with knowledge. Speak with your financial adviser and familiarise yourself with the numbers and the patterns of a business and of its competitors, annual report details, market trends and dividend yields etc – and you’ll already be ahead of much of the market. Old-fashioned research can still pay handsomely.
Next, it’s about having an individualised long-term plan with an agreed regularity of reviews, whether it is quarterly, bi-annually or yearly. Sticking to a review plan means you’re less inclined to make rash decisions during irrational market moments and more inclined to see the big picture.
And finally, manage your mindset. Volatility is the new norm so a calm head, a grand plan and an eye on the long-term goal is more important than ever.
Information in this web page is based on regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.
This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.