What is an anchor?

One of the definitions, according to the Cambridge Dictionary, is to make something or someone stay in one position by fastening him, her, or it firmly.

Now, if you are a Christian, the first thing that would have come to mind is, ‘My soul’s been anchored in the Lord’, right? So, the concept of having an anchor is a very important one. And it is never more important than when you are in a storm, because this is precisely when an anchor is most needed.

Now, let’s look at how an anchor is used for ships. Imagine if your investments had no anchor in a storm; they would be tossed about in every direction.

However, what are the anchors that should be used?

Firstly, investments should be made based on sound information. There really is no room for reading countless WhatsApp forwards with no credible author — these cannot be the basis for decision-making.

Instead, reading fact-based research on investments and then making your decision is the firm way forward. Using the right basis, will “anchor” your investments, so that after the storm your investment will still be standing.

Secondly, your investments cannot be based on emotion. Emotions are an integral part of our make-up and in fact, they separate us from machines (everyone has fears that artificial intelligence will take over at some point!). However, our emotions range from anger, panic, fear, greed, excitement and anxiety. Each one, if left untamed, can sabotage the growth that we should be getting in our portfolio.

No extreme is good, because irrational exuberance can lead an investor to take too large a position in either a sector, an individual investment, or an asset class. Likewise, excessive fear and panic can lead to you getting out of a position at the worst possible time.

There is nothing new under the sun.

Now, throughout this current pandemic, the discussions I have been involved in revolve around the fact that no one we know has ever lived through a situation like this. And that is true, really — we have never seen anything like this in our lifetime and it is difficult to adjust. However, in the light of the investment decisions that need to be made, what should we anchor our decision-making on?

Well, there are many things that should be studied which, while not a perfect replica of current conditions, should help to inform us.

These include examining the Spanish flu, severe acute respiratory syndrome, Middle Eastern respiratory syndrome, Zika, ChikV, the subprime crisis and more. This way, you have an idea of the best-case and worst-case scenarios, especially regarding the possible time frame during which your portfolio may be depressed.

You should have immediately observed that nothing lasts forever, right?

Good.

Meanwhile, Nero fiddles while Rome burns.

We have been calling for people to invest because while everyone has been caught up in the pandemic, certain of the local stocks have been steadily moving up in prices and in the global bond market.

Some of the incredible prices that were quoted are very difficult to get, and people are wisening up and not willing to give away their assets. Bottom line several opportunities have already passed you by.

Don’t fiddle! Anchor your investment in the right things!

Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in US 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.