The election is over, now let the dust settle
Finally we have the outcome and a new strong direction for the UK, with Brexit now happening in the way that Boris Johnson has planned. There will be international reactions to the new political landscape and the markets will no doubt respond too. In fact, at the moment the exit poll was announced Sterling rose significantly; and we can expect to see further fluctuations across the board in the UK markets. Which is why, whatever way you voted, I’d like to just focus your attention on your finances and what you should and shouldn’t do next.
Psychologists tell us that we have been hardwired over the last 100,000 years to behave the way we do. With most of these behaviors being based on primal instincts that determine our survival as individuals and as a species. So in many ways, these behaviors are so deep routed at a biological level, we don’t stand much of a chance of avoiding them as individuals. That is of course, if they are not pointed out and guarded against.
The modern world really is an extremely new phenomenon, especially when we look at it through the lens of evolution. The vast interconnections and the exchange of up to the minute information and ideas are truly phenomenal. So have some sympathy for that part of your brain that has been hardwired to live in a world that lasted for around 98,000 years and now no longer exists; and never doubt the influence it still has over you and your finances!
Here’s how a caveman still influences your decision-making
We all carry around these hardwired modes of behaviour; and one that may come to the forefront in the next couple of months is what psychologists call ‘The Bandwagon Effect’
There is an incredibly powerful compulsion to follow the herd. It’s been bred into us at the very base level of our existence; and in uncertain and stressful times, it comes right to the front of our thinking. That’s because for tens of thousands of years, belonging to and conforming to a group was a very successful strategy for survival. Staying with the group is far better for survival than going it alone. Hence, over thousands and thousands of years the desire to follow the herd has been bread into all of us over time – and is now a fundamental human instinct.
How many times have you fallen for the appeal of a busy mediocre restaurant verses a fabulous empty one saying “Let’s eat here, it looks full so it must be good”?.. It’s the Bandwagon Effect in full swing.
When the wheels come off and that impacts your finances
An excellent and extreme example of The Bandwagon Effect causing financial problems was laid out in the dramatic rise and crash of Bitcoin. That particular bandwagon was one that people couldn’t get on fast enough, despite common sense telling them that it wouldn’t last. For the majority of ordinary investors, they bought Bitcoin at the height of its value only to watch the value plummet.
Whilst Bitcoin is an extreme example, I use it to illustrate the Bandwagon’s grip on sane minds. So my words of caution are aimed at the post-election markets in general, over the short-term.
March to the beat of your own drum
Over the next few weeks or months the markets are going to react to the first quarter of the new Government. That may well create fluctuations and the odd perceived stampede toward the Bandwagons. My advice would be to bide your time and wait.
Think about theold adage ‘If you see a bandwagon, it’s already too late’
Markets hate uncertainty and have been reacting to the political deadlock that we have been living with through the post Brexit Referendum.
However, now is the time for the markets to settle again. It’s certainly not the time to take peer-pressured decisions on investment acquisitions or disposals. If you spot an opportunity whose value is created by a sudden influx or departure of groups of investors, please think again. Remember that bandwagons often artificially alter a market for the short term. So get some impartial advice and consider your options calmly and pragmatically. Please bear in mind that the powerful drives to follow the herd have been with us for over 100,000 years and have served us incredibly well. However, they are your worst enemy when it comes to the financial markets.
Unleash your inner Spock!
I’m not sure if there is such a thing as The Bandwagon Effect on Vulcan. However, I would say that approaching the financial markets with a Vulcan like emotionless clarity, and a determination not to get carried along with the crowd, is the only way to overcoming the possible pitfalls of market hysteria.
The markets are probably ahead of you anyway
Most of the serious financial markets have had any political upheavals already costed into them. So what you will be witnessing in any fluctuations is merely a settling of the market.
Also, don’t forget that the markets are now interlinked throughout the world. So, whilst the UK General Election may seem incredibly important to us, to the international markets it’s just a small bump in a very long and well-established road – and nowhere near as significant to performance than many of us believe.
Don’t just take our word for it though – talk to us too!
If you have any questions or worries regarding the current or future financial and investment markets, then pleasecontact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.