Fisher Investments UK Reviews Fighting The Last War

News stories documenting potential negatives abound in publications Fisher Investments UK reviews. When these stories look similar to past events, we have found investors anticipate the same negative outcomes – a psychological misstep, in our view, termed fighting the last war. We think fighting the last war can cause investors to focus on the past whilst overlooking present probabilities – potentially leading to investing errors, in our experience.

Fighting the last war stems from some common psychological biases, in our view. One, recency bias, is the human tendency to give more weight to recent experiences than past ones. Since present situations can often resemble past ones, we have found some investors equate them – despite meaningful differences. However, extrapolating past events’ outcomes forward may lead to misguided portfolio decisions, in our view. Whilst we don’t dismiss the possibility of present-day news stories mirroring past outcomes, Fisher Investments UK thinks stocks move most on probabilities, not possibilities. With missteps of the recent past fresh in the memories of many – along with lessons learned – we don’t think it is likely past mistakes are repeated near-exactly.

We think prospect theory underlies fighting the last war, too. Developed by behavioural economists Daniel Kahneman and Amos Tversky, prospect theory states that losses feel worse than gains of the same magnitude feel good.[i] As a result, losses weigh front of mind. We think this can apply to news stories with negative outcomes, as investors are more likely to remember and extrapolate negative outcomes, versus positive ones, when similar-looking issues arise.

One recent example of investors fighting the last war, based on Fisher Investments UK’s reviews of financial headlines: a new global pandemic that drives an economic downturn similar to COVID-19. Pandemics aren’t new, of course, but what made COVID-19 different was the institutional response: Governments worldwide imposed unprecedented lockdowns that curbed economic activity abruptly. These lockdowns – not the virus – caused markets to tank, in our view, as the MSCI World Index plunged into a bear market (typically a prolonged, fundamentally driven decline of -20% or more) in early 2020.[ii] More recently, we have seen many fighting the last war whenever novel viruses arise. Headlines in financial publications Fisher Investments UK monitors began fretting bird flu outbreaks in late 2021 and early 2022, monkeypox in mid-2022, and the Langya virus later that summer – all whilst drawing parallels to COVID and wondering if history would repeat.[iii] We don’t deny the human costs tied to viral outbreaks, but unless they interrupt broad economic activity in a huge, shocking manner – which appears unlikely right now based on the research Fisher Investments UK reviews – we don’t think the economic and market impact compares to the initial wave of COVID-induced lockdowns.

Another scenario in which we think many investors fight the last war: a new European debt crisis – repeating the events of the early 2010s. We have found European debt fears lingered over the past decade, particularly surrounding Italy, Ireland, Greece, Spain, Portugal and Cyprus. Many investors today may recall stories warning of Italy defaulting on its sovereign debt, leading to widespread economic fallout.[iv] Hence, when Italy debt sustainability warnings sprung up again in 2022, publications Fisher Investments UK reviews began fretting a reprise of the early 2010s – or worse.[v] Based on our research, however, Italian debt remains manageable: at the end of Q1 2022, interest payments totalled roughly 12% of Italian tax revenues.[vi] That is much lower than the early-2010s’ and 1990s’, roughly 20% and 40%, respectively – both periods in which Italy didn’t default.[vii] Yet investors continue fighting the last war.

Fisher Investments UK thinks understanding fighting the last war can benefit investors’ decision-making. We have found that looking for a repeat of the prior downturn’s cause can blind investors to the negatives forming in the present – or prevent them from considering realistic causes of the next big decline, going forward. Awareness that you might be fighting the last war may help prevent overlooking probable risks. Then, too, we think the knowledge that others may be fighting the last war can benefit investors by revealing where not to focus. We think surprises move markets most, and if warnings of the past repeating are widespread, we think stocks pre-price them, reducing surprise power. Knowledge of this investing mistake can help investors look elsewhere to identify less-seen developments – more likely to provide an investing edge, in our view. In his 2007 book, The Only Three Questions That Count, Fisher Investments founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher suggests asking: “What can you fathom that others find unfathomable?”[viii] We think understanding fighting the last war may help investors answer this question.

Disclaimer: This document constitutes the general views of Fisher Investments UK and should not be regarded as personalised investment or tax advice or a reflection of client performance. No assurances are made that Fisher Investments UK will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. Nothing herein is intended to be a recommendation or forecast of market conditions. Rather, it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. In addition, no assurances are made regarding the accuracy of any assumptions made in any illustrations herein. Fisher Investments Europe Limited, trading as Fisher Investments UK, is authorised and regulated by the UK Financial Conduct Authority (FCA Number 191609) and is registered in England (Company Number 3850593). Fisher Investments Europe Limited has its registered office at: Level 18, One Canada Square (NYSE:SQ), Canary Wharf, London, E14 5AX, United Kingdom. Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission.

Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission. Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.