A $1.6 trillion investment chief shares the biggest lessons that guide him through erratic markets

  • The stock market this week had its biggest decline since the United Kingdom voted to leave the European Union in June 2016.
  • Such moves, and worse, are familiar to Tim Armour, the CEO of $US1.6 trillion asset-manager Capital Group.
  • “The most important lesson I’ve learned over time is that you have to contain your emotions,” he said.

“Keep calm and carry on” is not exactly the kind of temperament traders are inclined to have when the Dow Jones industrial average is down by over 1,000 points.

But that mindset is exactly what’s paid off for Tim Armour, the CEO of Capital Group, which manages $US1.6 trillion in assets.

“I am never surprised by what the market will do in the short term,” he said in a blog post on Wednesday. “Frankly, I was a bit surprised at how fast the market was moving up in January. It seemed out of sync with the underlying fundamentals.”

Perhaps one excuse that panicked investors can give is that they’d become too comfortable with a quiet market and historically low volatility. Before this sell-off, the S&P 500 went on an unprecedented stretch of more than 400 days without a 5% pullback from the previous high. The benchmark index fell 6% from Friday through Monday, but has now managed to recover its losses for this year.

Here’s more of what Armour said (emphasis added):

“In my 34 years, I’ve seen a lot of market cycles and lived through some very volatile periods. With experience, you begin to understand that none of us can predict what the market is going to do in the short term. But what we can do is identify good companies that we think are growing and will be better and bigger companies 10 years from now. If we get that right, through all sorts of market cycles, we are going to do well for our investors.

The most important lesson I’ve learned over time is that you have to contain your emotions. It’s not easy to do on the way up, and it’s not easy to do on the way down, but it is your enemy in terms of creating wealth over time. Sticking with the fundamentals, employing good asset allocation, and maintaining a balanced portfolio with a long-term horizon is the best approach.”

Armour’s lesson doesn’t only apply to traders who stare at the markets all day. Even for the share of other Americans who own stocks – about half the population, according to a recent New York University paper – daily market moves should not induce panic. Volatility is par for the course with stocks.

Many Wall Street strategists at firms from Goldman Sachs to Wells Fargo have told their clients to do the counterintuitive thing: take this as an opportunity to buy quality stocks while while they’re cheaper.

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