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<\/p>\nThe economic impacts of the war in Iran continue to dominate headlines. Investors are following their typical playbook and rushing into the \u2018obvious\u2019 winners of the turmoil in the Middle East.<\/p>\n
For instance, there are higher oil prices. Over the previous month the following energy companies have performed well:<\/p>\n
Exxon Mobil is up 12.44%
\nChevron is up 12.82%
\nShell is up 15.42%
\nSantos is up 17.75%
\nWoodside is up 18.51%<\/p>\n
Yet investors viewing the market through the prism of the current challenges and opportunities arising from the geo-political mess we find ourselves are being short-sighted.<\/p>\n
Long-term returns are driven by a mismatch between valuation and prices. The following chart shows the price to fair value on the US market according to our analysts.<\/p>\n
<\/p>\n
The cheapest sectors are the ones most maligned in our current environment. The Technology and Communications sectors are being hit by fears about the impact of AI. Inflation concerns are driving weak performance in the Consumer Cyclical sector.<\/p>\n
Those cheap valuations don\u2019t mean there aren\u2019t legitimate problems. AI is disrupting the previously strong moats of many leading companies in the software space. The longer the war goes on the greater supply chains are being impacted. As COVID demonstrated this can drive inflation which is difficult to reign back in.<\/p>\n
Prevailing narratives may be true. But investors historically have overreacted to narratives on both the upside and downside. The constant drumbeat of headlines reinforces this tendency.<\/p>\n
It is easy to invest using first order thinking \u2013 for example, oil is more expensive which is good for oil shares and bad for consumer spending. It is much harder to stay multiple steps ahead of our current situation.<\/p>\n
What to do right now<\/p>\n
Successful investors will focus on where the world will be in 10 years. That isn\u2019t easy but it beats trying to interpret each tweet out of the White House.<\/p>\n
Remember that when investors are anxious and there is volatility they tend to make poor decisions. Much of the advice coming from the more sober commentators is to \u2018not panic.\u2019 This is well meaning and meant to be helpful.<\/p>\n
But people generally don\u2019t panic. Instead, people rationalise their way into decisions that hurt their long-term interests. We describe investors as capitulating. Yet nobody would describe their own actions as capitulation. And that disconnect between how people see their actions and how they describe the actions of others matters.<\/p>\n
Investor returns are influenced by the timing of buy and sell decisions. The gap between investment and investor returns is an indication of how poor we are at making decisions. Each poor decision is a point of failure. The cumulative impact was a 1.10% gap between investment returns and investor returns over the previous decade in Morningstar\u2019s latest Mind the Gap study. Collectively investors are not up to the challenge in the best of times.<\/p>\n
Given this is an annual study, the size of the gap will fluctuate each time we run a new set of data. Over time we\u2019ve noticed several patterns. The gap widens if there is more volatility. This is evident when different types of investments have different levels of volatility\u2014say share ETFs and bond ETFs. The investor gap is bigger for share ETFs than bond ETFs. It is also evident when different periods of time have different levels of volatility.<\/p>\n
For instance, in 2019 the gap was around 1%. In 2020 with turbulent markets in response to COVID the gap widened to close to 2%.<\/p>\n
You are far more likely to make a mistake in times like this. Slow down your thinking and scruitinise each decision more than you normally would. It might just pay off in the long-run.<\/p>\n
Mark LaMonica<\/p>\n
Also in this week’s edition…<\/p>\n
From 1 July 2026, major superannuation caps will increase due to indexation. Julie Steed outlines the rates and thresholds that are changing<\/a> and those that aren\u2019t.<\/p>\n Inflation continues to worry investors and policy makers.\u00a0Michael Collins explores how central banks are reconsidering inflation targets<\/a>.<\/p>\n As data mining capabilities have increased and AI has advanced, investors have sought to identify factors that led to alpha or outperformance. Larry Swedore examines a study suggesting a new mindset is needed for investors looking to generate superior returns<\/a>. \u00a0<\/p>\n Many investors believe a \u2018balanced\u2019 portfolio is the best of all possible worlds. But Werner du Preez believes hidden concentration risk<\/a> may be lurking under the surface.<\/p>\n Investors are fleeing bonds given projections of higher inflation and a hawkish response by the RBA. Phil Strano sees some benefits for investors willing lock in attractive rates of income<\/a>.<\/p>\n The only thing that matters is the return that ends up in your pocket. Emma Davidson looks at after-tax returns on LICs<\/a> and the opportunity for LIC providers to provide more return transparency for investors.<\/p>\n Jow Wiggins explores the impact on decision making<\/a> from an \u201cavailability cascade\u201d as investors lose sight of the long-term while their attention is focused on each successive short-term risk. \u00a0<\/p>\n This week’s white paper from the World Gold Council looks at the role of gold in 2026<\/a> for Australian investors.<\/p>\n Curated by Mark Lamonica and Leisa Bell<\/p>\n Latest updates<\/p>\n PDF version of Firstlinks Newsletter<\/a><\/p>\n Monthly Investment Podcast<\/a> by UniSuper<\/p>\n ASX Listed Bond and Hybrid rate sheet<\/a> from NAB\/nabtrade<\/p>\n Listed Investment Company (LIC) Indicative NTA Report<\/a> from Bell Potter<\/p>\n