Blog - April 26, 2022
When Russia took their first invasive steps into Ukraine on February 24th, it kicked off a global frenzy of political actions and reactions, humanitarian concerns, and a seeming galvanization of the rest of the world behind the Ukraine people. This is a shocking, tragic, and avoidable disruption of human rights – like many, we wonder how something like this happens in the year 2022. Let us be clear at the outset – all else takes a back seat to the profound and devastating human impact of Russia’s invasion. However, as wealth managers it’s our duty to seek whatever financial lessons we can take away to help our clients navigate times of uncertainty now and in the future.
When looking back on the first news of Russia positioning troops along the Ukraine border and we began learning about the possibility of an invasion, in retrospect the eventual incursion may appear to have been an inevitability. Today, we may feel that the events to follow – the foreign sanctions, a spike in commodity prices, and a noticeable pullback in stock prices, to name a few – were obvious.
But were they?
Many of the fascinating qualities that make us imperfectly perfect human are regularly displayed through a variety of cognitive and emotional biases. These behavioural inconsistencies – mental shortcuts & miscalculations, errors in judgment or false “memories” – infiltrate thinking. Maybe especially thinking related to our finances, a topic that evokes a lot of emotion and one that can be mentally draining. One common example is hindsight bias, often referred to by the saying, “Hindsight is 20/20.”
The truth is, we regularly overestimate how sure we were about the occurrence of an event, after the event occurs. This is the “I knew it all along,” phenomenon. Did you know that Trump would win the 2016 US Presidential election? Were you sure all along that your friend’s relationship wouldn’t work out? Were you positive that the Leafs would lose in the first round of last year’s playoffs? (Ok, maybe that one was obvious.) We find the same claims of prescience cropping up amongst people today as it relates to the Russian invasion of Ukraine.
The reality is, no one, outside of Putin and maybe a few close confidantes, could have predicted with accuracy this year’s sequence of events. No one, not even the world leaders themselves, could have expected the swiftness and severity of global sanctions on Russia. Perhaps most unknowable was the direction and precise magnitude of the impact on stock prices, commodities like oil or natural gas, interest rates, and inflation.
Similarly, we don’t know what will happen next. We don’t know where Russia’s invasion will stop. We’re uncertain when, if or how there will be some agreement reached that allows Russia and Ukraine to reach a stabilizing stalemate. Even as financial professionals, we don’t know how the various financial markets will react when they do.
Guess what? It’s ok that we don’t know. The future always has been – and always will be – unpredictable. We don’t need to delve far into our memory banks to find a couple of events that were a bit of a shock to all of us. Your investments, if positioned with appropriate risk for your financial goals, will be ok. Yes, it will be uncomfortable when the news is bad and you see declines in your investment portfolio’s value.
At times, you will wonder how things could possibly get better. If we can, as investors, embrace this uncertainty, admit that we just don’t know what will happen next, and avoid making knee-jerk financial decisions based on current events, we will all be financially better off for it.
This information has been prepared by White LeBlanc Wealth Planners who is a Portfolio Manager for iA Private Wealth. Opinions expressed in this article are those of the Portfolio Manager only and do not necessarily reflect those of iA Private Wealth Inc.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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