How to invest in 2024

Invest for the long term, focusing on what you can control and avoiding the urge to react to short-term market volatility.

This is advice from Allan Gray and bestselling author of The Psychology of Money Morgan Housel, on how to invest during a year as unpredictable as 2024, with over 70 elections worldwide. 

Speaking on the sidelines of a recent Allan Gray investment event, Tim Acker from Allan Gray and Housel outlined five lessons for investors to learn. 

Acker and Housel said the times we live in will always be uncertain. The trick is to remember the behavioural biases that erode wealth during periods of heightened risk and avoid them. 

“We can improve our long-term investment outcomes by focusing our efforts on the things that stay the same rather than the variables that are out of our control,” they said. 

No one can predict the future

Housel said that the biggest mistake investors can make in the face of uncertainty is to base their investment decisions on political predictions. 

For example, when Bill Clinton became US president in 1993, investors thought he would raise taxes, which would be bad for the American economy. 

“But then we had a bull market for eight years, which proved all the pundits wrong,” comments Housel.

Acker said that uncertainty makes most investors feel uncomfortable. “If we look at a stock that we want to invest in, we’re probably only 55% certain that this stock will outperform the market over time,” he says. 

“That means there’s a 45% chance that this stock will underperform, which is quite a high risk, but the reality is that very rarely are we 100% sure that any stock is a sure bet.”

As paradoxical as it may seem, uncertainty can co-exist with prosperity. Even though it may feel that global uncertainty has surged, it doesn’t mean that some things won’t change, he says. 

He gives the example of a comment made by Warren Buffet in the aftermath of the 2008 global financial crisis. “Buffet asked, ‘What was the best-selling chocolate bar of 1962? Snickers. What’s the best-selling chocolate bar today? The answer was the same – Snickers.”

This, he says, illustrates the importance of recognising patterns and behaviours over time, a critical insight for decision-making in finance and life.

Invest in preparedness, not in prediction

The lesson that COVID-19 taught us is that we should be prepared for the unexpected. “Every year, there is a 1% chance that there will be a terrible recession, a pandemic, a war or a natural disaster,” said Housel. 

“But if you add up all those small chances, you realise that at least one of those bad things will happen in any given year.” We should factor low-probability risks into our thinking rather than underestimating them.

“I believe in investing for preparedness rather than prediction,” says Housel. “You need to build a portfolio that can withstand the risks of the unexpected.” 

“If you’re by nature more conservative, that might mean building more cash into your portfolio to make you sleep better at night.”

Switch from a “fine” to a “fee” approach to volatility

Another common investor mistake is confusing market volatility with an error in judgment.

 “You get a fine when you’ve done something wrong like speeding,” he says. “But you pay a fee if you want to go to Disneyland.” 

“In the same way, if you want to benefit from compound interest and grow your wealth over time, you need to be willing to pay the fee of market volatility. It’s a fee, not a fine.”

If somebody tries to sell you a Ponzi scheme, they’ll promise you returns of 20% a year with no volatility,” Acker said. 

“The no-volatility claim is a warning bell that it’s a scam.” Volatility, he says, is the price you pay for being in the market. 

Investing is a marathon, not a sprint

If you’re investing for your retirement or your children’s tertiary education, your mindset needs to change to that of an endurance athlete, Housel said. 

“Saying you’re a long-term investor is like looking at Mount Everest from base camp,” he asserts. “That’s a great goal. Now you need to climb to get to the top.”

“The magic of compound interest means that average returns for an above-average period of time will always be better than above-average returns for a short period of time.”

Nevertheless, dealing with the emotional rollercoaster of market fluctuations is difficult. 

“Many investors are tempted to sell their shares at the worst possible time when the market is at its lowest,” Acker said. 

“You need to have nerves of steel to ride out those storms and stick to your long-term strategy to reach your investment goals.”

Ask the right questions, which leads to better behaviour

Housel explained that many investors ask the wrong questions when it comes to investing.

For example, “What are the highest returns I can earn?” However, the right question to ask would rather be, “What are the best returns I can sustain for the longest period of time?” 

Average returns sustained for an above-average period of time lead to magic.

“As humans, we are not good at predicting what is next, regardless of what anyone tells us. In the absence of a crystal ball, we can focus on what we can control when it comes to investing,” Acker said. 

“This starts with identifying the behaviour that stops us from achieving our long-term goals, as well as what helps us attain them. Patience is key to success in long-term investing.”


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