Headlines, bubbles and your portfolio: what should you do now?

When Jamie Dimon, the CEO of JP Morgan Chase, warns of a financial bubble the headlines become once again inundated with talk about impending doom and looming crashes. It is natural in these scenarios to wonder what this might mean for your own investments and whether you should be doing something now to protect your wealth.

Should you do something in the short-term

A recent piece from Spectra Markets looked at the so-called “magazine cover indicator” which is the idea that when a market story is so popular it makes the front cover of a major magazine, the theme may be closer to the end than the beginning. In other words, by the time the splashy headline hits the newsstands, we are probably nearing the end of that market cycle – not entering a Nostradamus’ style prediction of a new market phenomenon.

Looking back over decades of high-profile covers from publications such as Time and The Economist, the analysis found exactly this: that the bold, one-way headlines such as “the death of equities” or “the unstoppable rise of X” were often followed by the complete opposite and returns (positive and negative) in the other direction than the headlines had predicted.

The takeaway from this is then that when headline sentiment became very optimistic or very pessimistic, investors tended, on average, to behave better if they acted in completely the opposite fashion. Therefore, do not let the headlines determine your behaviour!

Is there a bubble then or not?

The headlines, the hysteria and the research by Spectra Markets gives us a very telling insight into crowd mentality, what it does not do is give any timescale to when the next market event is likely to happen. Bubbles are easy to label in hindsight; in real time, even seasoned professionals struggle to distinguish between strong markets supported by fundamentals and genuine manias that are set to unwind sharply.

What we can tell is that some parts of the global markets do look expensive compared with long-term averages and investments de jour are always susceptible to speculative interest from time to time. However, overpriced stocks do not necessarily mean a bubble, instead true bubbles combine stretched valuations with widespread euphoria, easy credit and a firm belief that “this time is different”. The sheer presence of the negativity and predictions of a bubble are outliers to previous bubbles.

What this means for you as an investor

For individual investors, the key message is not to try to outguess the next headline. Even indicators that work well in historical studies can be very difficult to use successfully in real life if they encourage frequent, emotion-driven changes to your portfolio.

Instead, the focus should remain on the factors you can control:

1. Keeping your investments aligned with your personal goals, time horizon and tolerance for risk, rather than with the latest market narrative.

2. Holding a diversified mix of assets so that your portfolio is not dependent on a single region, sector or story continuing to do well.

3. Accepting that downturns are a normal and unavoidable part of long-term investing, and planning for them in advance rather than reacting in panic when they arrive.

This approach reflects the calm, long-term discipline that underpins not only Carbon’s evidence-based investment philosophy but wider approach to long term financial planning. We emphasise planning over prediction and behaviour over bravado.

How we help clients navigate this environment

If you are concerned about talk of bubbles or a potential market fall, the most constructive step is often a conversation rather than a reaction. Discussing your situation in the context of a long-term plan can help turn unsettling market stories into informed decisions that support your financial goals.

Periods of heightened noise can be uncomfortable, even for experienced investors, and it can be reassuring to sense-check your position. A structured review of your financial plan and portfolio can confirm whether you are taking the right level of risk, are suitably diversified, and remain on track to meet your objectives, regardless of the latest headlines. Also, ensuring that your investment is simply the engine that drives your long-term plan which in turn is geared towards achieving your hopes, dreams and aspirations.

If anything in this article has resonated with you, and you would like to discuss further, please get in touch with us on 0131 220 0000 or enquiries@carbonfinancial.co.uk.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.