Sunday Business Post Article on Ignoring the noise, invest in Long term, 16 February 2025
Authors: Patrick Holohan, Senior Portfolio Manager of Compass Private Wealth
Published: Sunday Business Post, 16 February 2025
Its 2025 and the noise is back. We are only a few weeks into Trumps new term, and we are being bombarded by tariffs, questionable governance and mixed messages. In a world of short attention those who shout loudest and wildest get the headlines. This new world order and its volatile news cycle is probably something we all have to get used to, but investment markets are beginning to take this all in their stride.
Take the Monday after Trumps Mexican and Canadian tariffs were announced. Initially markets fell by 2-3%, but by the end of the day they had recovered most of the sell-off as concessions were negotiated. The news may be volatile, but markets seem to be taking a calmer approach. Even the initial c.2% impact is a very normal market move.
The VIX index is a metric that uses the options market to estimate the expected volatility, or risk, within the market for the next 30 days. In the last 12 months this index has barely moved. This year the index has fallen, implying lower volatility, with no change since Trump and the ‘noise’.
All of this is short termism. Who knows what the next 3,6,24 or 48 months will bring. What we do know is that to be invested wins over the long term. In any one month, there is a c.60% chance of a positive outcome. This rises to c.65% when considering a 6 month period, annually, c.73% or, over a rolling 10 year period you can expect a positive outcome of c.95%.
The fact is, we can all find reasons to not invest. Too much political uncertainty. Markets are too expensive. AI is a bubble. Inflation is coming back. But in the last 5 years we have worried about Trumps first term, Covid, stellar inflation, war, Chinese property crashes and yet world stock markets are up c.50%.
What I prefer to focus on is the stuff you don’t hear about in the news. For example, a question I rarely hear is why markets are so strong and trade near all-time highs. The current bull market run, which is now in its 13th year, has seen earnings per share grow of c.60% in the last 5 years (for the S&P500). Nvidia’s share price, the poster child of the AI trade, is up c.1,700% in the same time period, with earnings up similar amounts. While the tech bias exists within markets, it is built on real earnings unlike the tech bubble of the early 2000’s. We are in a period of significant capital spend by the big tech companies which should drive innovation, specifically in productivity and healthcare. All this before the power of quantum computing (see Googles Willow chip) to the picture later this decade.
Furthermore, none of the major economies in the world are expected to go close to recession in 2025. Global growth should continue for some time yet in an environment where interest rate policy is becoming more accommodative. Add to this the US government protectionism policy and you can see an easy path to continued US growth built on the backs of a consumer who has low debt. Within all of this environment, other Governments have started to consider how to protect their own interests with more investment and de-regulation. For those not watching, the German stock market is up c. 10% this year so far at the time of writing.
Markets are a little expensive for sure. But in the last 20 years the P/E of the S&P 500 has traded above the average 17x earnings about 70% of the time. You can be a long time waiting for markets to become ‘cheap’, when they do, it’ll likely be on the back of a major stress and you’ll sit that out also.
Inflation is now reasonably under control. The highs felt post Covid have eased, and we are seeing a normalisation of rates. We are not going back to zero interest rate policies, but neither are we going back to 10% inflation anytime soon. Such relative stability is good.
If you are a long term investor, or want to become one, the most important metric is time in the market, not trying to time the market. Missing the 5 best days in markets over the last 20 years would have cost you c.35% of the overall return. If you missed the 50 best days, you missed c.90%.
A favourite quote of mine is from Warren Buffet who said “the stock market is a device to transfer money from the impatient to the patient”. Don’t be impatient.
Despite my reasoning above, 2025 may be a negative year. I, nor anyone else, can be certain. But do not be afraid of implementing your investment plan. If done correctly, you will not have to sweat the short term noise but rather enjoy the long term benefits. .
Patrick Holohan is Senior Portfolio Manager of Compass Private Wealth with offices in Dublin and Cork.
Disclaimer: The above is generic in nature and does not constitute financial advice.