76. When the U.S. sneezes, the world catches a cold

My financial education was brought up in an environment when the US markets rule the world.

In the mid-90s when I was with a fund management company, we make it a point to check the results of US trading every morning before we go out and meet our distributors, this provides a starting point for market updates we give throughout the day, and if the market is extra volatile (up or down at least 2%), we would shift through the news to try to find clues for its next move, these information somehow gives our sales partners a certain sense of comfort in believing that the market is somewhat rational and any moves can be explained away in a logical manner.

The financial services industry is sometimes categorized into the “Sell side” and the “Buy side”, Sell side are companies involved in creating products and services that aims to generate returns on the market, the buy side companies are the pension funds and investors in general who buys these products to include in their investment portfolio

Financial advisors in general, as they are offering products and services can be grouped with the Sell side, while the insurance companies they represent are generally grouped with the Buy side as they continuously source out financial products to be used as building blocks to the Life Insurance products they create

This insight is useful in understanding how the markets may influence the context in which information is gathered and disseminated

The Sell side obviously would focus on the more positive aspects of the markets to make their product offerings more saleable while the Buy side may be more critical in their study of the market as a faulty view may affect the viability of the products they create and place the reputation of the company at risk

The Sell side’s context in the market updates they provide can be summed up as “what can go right given the circumstances” while the Buy side focuses on “what can go wrong”

As we create our own market narrative it would be helpful to seek inputs from both sides, combining insights from “what can go right” and “what can go wrong”

My own experience tells me that divining the next market move is quite difficult, no matter what the forecasts is (either up or down), the odds of being correct six months from now would be 50/50 at best

This builds the case of having a proper asset allocation strategy before committing any funds to the market, spread out your investible funds in assets that are generally uncorrelated, this would provide the flexibility to adjust your market exposure which may help in generating consistent positive returns over the long term.

All the best my friends

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