Financial volatility: Get used to it

If you find yourself unsettled by the current volatility in the world’s financial markets, get used to it – it’s here to stay. That’s the conviction of financial advisor Dr Michael Yoshikami, who delivered a guest lecture on portfolio and asset allocation in volatile times at NUS.

Yoshikami is the CEO, founder and chairman of YCMNET’s Investment Committee at San Francisco-based YCMNET Advisors. He has over 25 years experience in investment management and financial planning. As a frequent television commentator and newspaper columnist, he says he’s often asked if the market volatility will continue.

He believes it will, in part because of continued advances in technology which makes trading easier, but also more chaotic.

As such, he said, “volatility will never, ever, ever go away – technology allows volatility.”

But he told students at the lecture that it’s more than just the technology that allows them to use their personal computers or smartphone apps to hit a button and trade a stock.

“I’m talking about the technology where there are people who have computers that are a million times more powerful than your computers that are trading thousands of trades in a second, capturing one-one-hundredth of a penny movement in prices. That’s what creates volatility.”

Tectonic shifts

The impact of technology is just one of the “tectonic” shifts he’s seen in the financial world in the past 10 years. Another is the “democratisation of information,” where news is available for everyone to act on at the same time.

He’s also noticed the shifting of wealth to Asia and Latin America, a trend he told students a lot of people were missing or underestimating.

smartphonestocks280Democractising technologyTo understand that trend and others in global markets, Yoshikami said, financial advisors must travel to collect first-hand knowledge of world economies and geographies.

YCMNET Advisors, for example, is based in California’s San Francisco Bay area. But Yoshikami was taking time during his visit to Singapore to conduct research.

“I think what investors and students need to recognise is that they need a more global perspective, not be so dogmatic in believing that their world is the only world, and not believe the images that are cast upon them by outside sources,” he said in an interview following the lecture.

The students who attended the lecture heard Yoshikami speak for nearly two hours on how to make good decisions amid the volatility. Given the wild swings in the markets over the past few years, one student asked if there was no longer such a thing as a long-term investment strategy.

Responding Yoshikami said a long-term strategy still matters, but it’s less important than it used to be.

Exit points

“I think short term becomes more and more important given the fact that there’s so much volatility,” he said. “People are moving more toward short term, absolutely. The ‘invest, lose 50 per cent, hang in there, we love you’ model just isn’t selling.”

But he added even long-term investors need to understand the short term strategy. “You have to understand technical analysis, you have to understand short-term strategy in my view, even if you’re a long term investor, because at the very least it gives you entry and exit points.”

Yoshikami said he was encouraged by the questions he got from the students which he said showed they were learning to dig into the details of investment strategies.

“I think that now universities recognize that it’s not just information that you learn,” he told NUS. “It’s how you’re going to apply that information in the real world, what insights you’ll bring to your environment, bring to your employer.”

His lecture challenged the students to start thinking about that now.

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