Who controls the valuation of your portfolio? You? Your financial advisor? Your broker? Not who you think.
You, your financial advisor, and your broker may control what assets go into your portfolio, but a number of outside forces determine your portfolio’s valuation. And in the current economic environment filled with fear and uncertainty, these outside forces/market drivers are out in force – changing the trajectory of stocks at the drop of a hat.
These days, market drivers, great and small, can trigger a selloff in the stock market in an instant. The past year has been particularly volatile, with market triggers of all kinds putting their stamp on the stock market.
Witness the ups and downs of the stock market year to date:
The headlines say it all when it comes to what’s moving the stock market needle:
“Wall Street sinks as US Fed steps up inflation fight.” –Smh.com.au.
“Stock markets drop as Wall Street takes a gloomy view of the economy.” –Npr.org.
“El-Erian says the Fed has made a ‘policy mistake of historical proportions.” –cnbc.com.
It’s not just economic news triggering the markets.
In the current digital age, forces affecting the stock market weren’t around 30 years ago. All this leads to why the markets are so easily moved. The answer lies in the accessibility and liquidity of stocks.
Any adult with a bank account can be trading within minutes with free trading platforms like Robinhood. Then once their accounts are funded, investors can duck in and out of stock positions at their whim – making the markets highly susceptible to large market movements induced by market triggers.
What has been driving the markets this past year?
Here’s a sample:
Inflation.
In June, inflation hit 9.1%, a 40-year high, with July and August hitting 8.5% and 8.3%, respectively.
Rising Interest Rates.
The Fed’s aggressive monetary policy tightening through frequent and significant rate hikes is not only affecting investor perception of a market slowdown, but with slowdowns in consumer and business spending due to the increased cost of borrowing, this perception is becoming reality on corporate balance sheets.
Recession.
The last quarter marked the second consecutive quarter of shrinking GDP – official recession territory.
Supply Disruptions.
Supply disruptions tied to the pandemic, war, and gas prices have contributed to record inflation.
Layoffs.
With expected diminished demand from rate hikes, companies plan to reduce demand by laying people off or instituting hiring freezes. And some big names are in the mix, including Ford, Alibaba, Amazon, and Credit Suisse, to just name a few.
Monetary policy, inflation and recession fears, and supply chain issues are just a partial list of factors that drive the markets.
Non-economic factors like the internet, social media, and online forums are also formidable market triggers that can spread the buzz, hype, rumors, and news like wildfire and move the needle in significant ways.
The accessibility and liquidity of the public markets are the primary factors explaining market susceptibility to economic news, internet hype, social media, and talking heads. The public markets are the playground of market triggers where investors have very little control over the valuation of their portfolios.
But, are all portfolios susceptible to market drivers?
Wise investors shield their portfolios from market drivers by taking their assets out of the public realm into the public markets, where illiquidity and long lockup periods prevent herding behavior.
Instead of leaving the valuation of their portfolios in the control of outside factors, they place the valuation of their portfolios directly in the hands of the assets and the companies in which they invest with trusted managers who build value in time with the benefit of being shielded from market volatility.
Not only do private investments offer peace of mind from public chaos, but they also offer better predictable returns. The ability to partner with trusted experts, step away from their investment, and let it grow is priceless.
By investing in the right assets with the right partners in the private markets, smart investors can take control over their portfolios’ valuation out of outside forces and put it squarely in the hands of trusted assets and management.
To take control of your portfolio, consider taking that control out of the hands of random market drivers and putting it in the hands of reliable assets and trusted partners.
