Last month, March, was one of the worst months for the stock market in many years. The global equity index ended at -7.6%, and one doomsday prophet after another predicted in the media the catastrophic effects that the Iran war and the uncertainty surrounding the Strait of Hormuz would have. The troubling part was that virtually all of these gloomy predictions sounded very reasonable. In other words, the stock market had crashed at the same time as the macroeconomic outlook appeared highly negative.

In moments like these, it is, as we know, easy to play it safe and sell while there is still some money left. The problem is that the vast majority of investors think the same way, which has been the reason behind the aggressive decline in the market.
Our view is that macroeconomic forecasting is extremely difficult. In last month’s letter, we quoted John Kenneth Galbraith with what we believe is the perfect quote:

“The only function of economic forecasting is to make astrology look respectable.”

We also added that it is important to look at the effects that macro events may have on individual companies. In most cases, our conclusion was to stay the course.
With hindsight, that turned out to be the right decision. The market calmed down very quickly, and during April the global equity index rose by a remarkable 9.9%, an extraordinarily strong figure. Does that mean the world situation is now completely stable and that all the problems that were relevant a month ago have disappeared? Hardly. It is easy to act as an amateur macro expert and come up with convincing arguments for why the economy is about to collapse — not just this time, but on many occasions throughout history.

However, the incentives for almost the entire world population are always to find solutions to problems quickly, which means that catastrophe scenarios rarely play out in full.

And while one has been reasoning so intelligently about the collapse of the global economy, selling stocks and funds and preparing for the crash, the market is suddenly up 10%, and one has no idea how to react. Our advice, as always when markets are turbulent, is: “stay the course.” This almost always leads to a better outcome, especially in the long term.