Double down on long term strategy not market noise

Market commentary over the past 12 months or so has been dominated by a few major themes - the rise of AI, the huge growth in companies like Nvidia, Microsoft and Apple, and the performance of Australian banks and in particular CBA.

For investors, there is a risk of FOMO - fear of missing out - if they aren't investing in these themes.

While this is understandable, it's important that investors remember that achieving good long-term returns isn't dependent on what's "hot" today.

Proven performance

Fortunately, there's no need to just take my word for this.

The investment portfolios that we manage for our clients have outperformed the median superannuation fund over the past 12 months by 4%, despite having no exposure to CBA and being underweight the booming US tech giants, demonstrating the strength of a diversified, actively managed approach.

The challenge for investors is to recognise where they are basing their decisions on emotions such as fear, and where they are making decisions on sensible, long term views.

Investor behaviour

There has been a lot of research done into investment biases and how these affect investor behaviour.

With a high level of volatility in markets, and a lot of chatter about what President Trump might do next with tariffs, how AI might upend markets, and whether the RBA will keep lowering interest rates - to name just three recent headlines - certain biases are probably more prevalent than ever.

Anchoring bias, for example, refers to decisions made that are based on a single point in time rather than a holistic view.

For instance, investors might look at a company's performance or stock price today, and use this as an anchor to make a future price prediction, without considering how accurate or representative the current price point is.

Availability bias

Another bias is availability bias, where investors rely on the first piece of information they hear about a company, or the knowledge that comes most readily to mind, without fully considering other information.

This is particularly likely to happen at the moment when there is so much talk about the likes of Nvidia, Tesla and Microsoft.

A disciplined investment process, built on a long-term and diversified strategy, is the best way to minimise the risk of these kinds of investment behaviours.

Investing's free lunch

We've long been advocates of diversification.

As Harry Markowitz - the father of modern portfolio theory - once said, diversification is the only free lunch in investing.

This means more than adjusting the balance between, say, equities and bonds in a portfolio, or investing in global equities as well as Australian equities. For us, this means including different asset classes such as listed property, global infrastructure and high yield debt.

The key is to maintain a tight focus on investing with the discipline to avoid overpriced investments, and focus on long-term expected returns.

For example, this focus has led us to have zero exposure to CBA for the whole financial year. This is at a time when the ASX 200 increased 14% during the year and CBA contributed nearly 30% of this return.

Lower volatility

Likewise, we had an underweight exposure to large US equities, particularly the Magnificent 7.

The US market performed well for the year rising 13.6% and those stocks were about 50% of the return.

However, our global exposure was ahead of respective benchmarks and importantly we had much lower volatility when the US market went through its near 20% correction in March 2025.

Our investment changes throughout the year have reflected an overall need to be more defensive when share markets are approaching being fully valued.

This may seem strange after a year of 10% plus returns, however with the US share market having been on a strong upward trajectory since the end of the global financial crisis and the Australian share market averaging 13.3% per annum over the last five years, it makes sense that these share markets are now starting to be fully valued.

Most importantly for investors, they shouldn't be thinking 'What's going to happen over the next six to 12 months?', but rather, 'How long do I wish to invest for, and what do I want to achieve?'.

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