Of slumps, bumps and...

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of 10X Investments.

So global markets have been interesting lately. But don't worry, I feel like we'll get over the hump.

(If you’d like a concise commentary on the market movements discussed in this article, check out this webinar. And if you want to understand how to thrive even when things are upside down, you can read this article on a sound long-term investment strategy. Also, how many more words can I find that end in -ump?)

We don’t need to get too deep into the context. Everyone knows Donald Trump imposed some US import tariffs. Then he did a bit of a u-turn.

For everyone except China.

He really seems to dislike China. But even that animosity seems to be softening after the markets (and, one hopes, people he trusts) showed him the damage this line of action could do to the global economy. So now he’s said that a deal with Beijing would significantly reduce the sweeping tariffs he’s posted on Chinese goods. After a report that the US would be willing to phase in lighter tariffs on Beijing over five years on Wednesday, Trump told reporters that China was ‘going to do fine’ once talks had settled. China faces a cumulative 245% in import duties after the most recent announcements. The Wall Street Journal reported on Wednesday that the range of duties could come down to between 50% to 65%.

This all seems rather impulsive. Wouldn't this cost the US when it comes to computer chips and other vital things they don’t make themselves? I also wonder what Elon Musk might be thinking. Tesla's stock price has slumped recently, with the irony being that China is a major market for electric vehicle manufacturer.

Did anyone really think this through?

Of course Musk and other very rich people's massive losses makes headlines, but do they even feel the pain? People like me who are trying to save for retirement certainly do, at least in the short term (and we don’t get any headlines, either). But there's good news too, because all markets go through cycles.

While I'm annoyed by all of this, I'm not sounding the doom and gloom alarm. While some of my money is definitely invested in US equities because I have a diversified portfolio, the wisdom of not putting all my eggs in one basket is finally paying off (I mean, I hope so – I might not look for a while). This is the beauty of diversification and a long-term outlook.

So what if we are looking at the possibility of (that worrisome word) recession? Well, even if we are, that word probably shouldn't provoke all the worry it tends to. Why? Because of the market cycles I mentioned earlier.

It's at this point I remember an article I wrote for ITWeb a while ago, based on some nifty data research that a colleague put together. It showed the cyclical nature of recessions – boom bust cycles, if you will. The World Bank lists recessions as having happened in 1975, 1982, 1991, and 2009 over the past seven decades. Looks something like a cycle to me. There's a lot more detail on this (and a bunch of other great investment stuff) in the video below:

The last big one was the so-called Great Recession, caused by the home loan situation in the US, which is arguably the worst of all recessions since the one in 1939 (have you seen the Big Short? No? Watch it). So if recessions are in some sense inevitable, the question then becomes: what's the smart thing to do?

The answer is, firstly, don’t panic. Panic selling tends to lock in losses. (Ok, nobody has a crystal ball. Maybe moving everything into gold and crytpo could turn out to be the best move. I joke. Let’s be honest: probably not).

Let’s turn to the data again.

The Nasdaq has soared by approximately 1,650% (including dividends) in Rands since 2000. The S&P 500, similarly, has delivered a total of about 1,600% in Rands over the same period. Locally, the JSE All Share Index (ALSI) has gained 1,350% since 2000. Gold – which I really should have bought many moons ago when it was $279 an ounce but didn’t have the bucks – has surged by almost 3,000% in Rand terms since 2000.

Granted, my starting point for these indices isn’t the same, so it’s not really apples against apples. And to what extent a possible tech bubble has influenced this growth isn’t clear. What the data does show, and this is the really important part, is that markets correct themselves.

Over the long term, just as bumps in the road seem inevitable (Trump bumps or not), it’s highly probably that over the long-term, my money will continue to grow. The best thing I can do is trust the experts and leave it alone.

As my teenager says: “It will all be ok in the end, and if it isn’t ok, it’s not the end.”

Don’t panic.