Don't Get 'Whipsawed' by False Promises of Peace in Europe

VIDEO: Morningstar Investment Management's global CIO Dan Kemp explains why well-intentioned investors desperate for peace in Europe are making dangerous market calls

Ollie Smith 15 March, 2022 | 9:06AM
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Ollie Smith: Amid horrifying scenes in Ukraine, it's become clear that some investors are trading on hopes of peace. Here to share his concerns with me about that strategy is Morningstar Investment Management's Global CIO Dan Kemp. Dan, thanks very much for joining me.

Can you just start off by explaining the basics of what goes on when an investor is trying to trade on hopes of a resolution or an end to a conflict such as this?

Dan Kemp: Yeah, of course. Hi, Ollie. Well, I think, let's be clear. The first thing to say is that we're all hoping that this comes to a peaceful resolution really, really quickly. And so, that optimism that people feel for peace is a good and hopeful thing and we all share that. But it's not necessarily a great investment strategy. As human beings we dislike uncertainty, which we tend to associate with risk and the potential for losing something. And so, what that triggers in us is some predictable behaviors, one of which is a desire to fight the situation that's going on, to trade when we have very little information. And so, we're seeing that seemingly in the market where people are making investment decisions based on their expectations for the near-term resolution. And in reality, that's probably not a great way of investing.

OS: There have been a couple of moments already where people who might have tried this could have lost out in a serious way?

DK: We certainly have seen that, Ollie. We're in very volatile market conditions at the moment. We've seen prices rise and fall, sometimes on the same day by multiple percentage points. And the problem with that, of course, it causes you to doubt the decision you just made. We call it being whipsawed by the market. But sometimes you'll make a decision to either buy or sell an investment and then a few hours later, the market is completely changed, and that encourages you to change your decision. And all of this trading, firstly, costs you money, but secondly, can cost you long-term returns. Investment is always a long-term pursuit, and it's so important to remember that, particularly at the moment when we're all feeling uncomfortable with the market movements.

OS: Sure. And just finally, are there any other concerning investor behaviors that you're seeing or anything you want to highlight?

DK: Well, there's two other behaviors that people need to think about alongside this desire to fight what's happening in the market, to trade continually. And the first is one of flight where people sell their investments and move to cash. That can appear to be a good strategy if markets subsequently fall, but most people that do that aren't very good at getting back into their investments at a more opportune time. And so, holding cash for too long when you're saving for your long-term future can really have a negative impact on your returns and imperil your future wellbeing. And finally, we see the desire that people have to freeze, to not do anything at all. And actually, that can also be a mistake. You need to think about the long term, but seemingly where changes need to be made, then it's important to do that, not just ignore what's going on.

OS: Dan, eloquently put as ever. Thanks very much for your time. For updates on the financial implications of war in Ukraine, visit Until next time, a big thanks to Dan. I've been Ollie Smith for Morningstar.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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