Add some hope to your portfolio!

Add some hope to your portfolio!

The Sterling Report

BY YANIQUE LEIBA-EBANKS

Sunday, January 24, 2021

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This past week was an ex citing one for many. While we waited on the inauguration of the 46th president of the United States, we also nervously prayed that there would be no violence.

Reports of super-heightened security abounded. Fortunately, the new president immediately set about reversing many of the unpopular actions executed by the former Administration within hours of taking the oath. There was much joy. Even Dr Fauci was relieved, as he could finally express the truth about the virus without fear of reprisals.

Locally, I don't know how many people were glued to the news on the improvement in business confidence. Chances are they neither understood the implications nor really cared as Don Anderson stressed that this was not reflected in a corresponding improvement in consumer confidence.

In case you missed it, business confidence improved in the fourth quarter, moving from 109 during Q3 to 132 for Q4, although still below pre-COVID levels.

IMPACT OF HOPE ON

Hope can sometimes get a bad name. We have warned about the impact of emotions in financial decision-making, although the two most common ones are fear and greed.

However, Professor Terry Eagleton asserts that, “Hope is a slender read, a castle in the air, agreeable company but a poor guide, fine sauce but scanty food.” And the excerpt from his book may have an element of truth, especially if your hope is completely baseless.

Notwithstanding that view, we have reasons to increase our optimism, otherwise known as hope, and some researchers have found that hope leads to improved task accomplishment, improved creativity, cognitive flexibility and integrative problem-solving ('and-and' instead of 'either or'). Barney Jordaan in his book Hope Theory: Implications for Conflict Management and Mediation concludes that “hope leads to greater goal achievement because more hopeful people think and behave differently than less hopeful ones”.

The bottom line is that hope will improve your thinking and your decision-making.

IMPACT OF HOPE ON

Hope changes the lens through which you view the financial landscape and the opportunities available. If you believe that opportunities abound, you will search diligently for them. There are high costs for allowing fear to inhibit your decision-making, for example, many people have predicted the crash of the US stock market year after year. We have never been short of bad news or headwinds; every year appears to compete with the last for the challenges thrown at us. The five-year and ten-year graphs of the S&P 500 show that despite great volatility at times (see the graphs below), the trend has been upwards. Allowing fear to stop you from investing would have cost you. Furthermore, if you had been able to buy on the dips (during crises) you would have enjoyed even larger gains.

TAKEAWAYS

Remember that bad news sells. The media feels that if the news is too tame, then we will take no interest and have nothing to talk about. Therefore, everything is exaggerated and designed to induce the maximum level of panic. Don't get distracted by this. Search assiduously for the opportunities in the market. Do your due diligence and take a two-to-five-year position on your investments. Add some hope!

Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual, and institutional investor. Visit our website at www.sterling.com.jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm


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