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When you see it, it's too late

12 June 2017 | Tania Allerton

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According to the Red Cross website on tsunami preparedness, if you can see the wave coming you're too close for safety.

Something similar might be said of investment markets. If you can see what's happening, it's almost certainly too late to do anything about it.

We have a tendency to personify markets, to talk about the market doing this or doing that. But of course, the market is not a person. It doesn't make decisions. And neither does it grow incrementally, like a tree. It is not a person and neither is it an organic entity.

A market is an aggregation of the actions of individuals. In the case of a market such as the London Stock Exchange, the number of individuals participating at any one time might be scores of thousands. Each of these individuals is driven by his or her own agenda, by all kinds of ideas, insights, hopes, needs and desires.

Most of the time, the aggregation of these thousands of agendas will balance each other out, so that there is only a small movement up or down for the market as a whole. But sometimes, an idea will catch hold and spread. The market will move dramatically.

According to Malcolm Gladwell, author of The Tipping Point, ideas spread much like a virus, or indeed like rumours. They start small. They attach to 'influencers'. They become increasingly 'sticky'. Eventually there comes a tipping point, and the idea becomes established and starts to spread rapidly.

Of course, sometimes ideas reach a tipping point and become massive. Sometimes they just fade out. Which will it be? According to Mr Gladwell, epidemics are highly sensitive to the environment, so that their course is extremely difficult to predict.

Very few investors have a talent for predicting tipping points. For most of us, staying invested in an appropriately balanced and diversified portfolio will be the best course. By the time we see the wave, it may be too late.

Important information:

This article is designed for use by, and is directed only at persons resident in the UK.

The material contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this video does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this video when making any investment decisions.

Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described in this article, please contact your financial adviser.

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

The opinions expressed in this article are those of the individual author and may not be representative of Vanguard Asset Management, Limited.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.

VAM-2017-05-09-4669

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