Investing these days feels harder than ever. So much has changed, and there are so many uncertainties, from the financial (what’s going on with tech stocks?) to the cosmic (what will the new economic world order look like?). To make matters worse, there is no haven — not gold, not crypto, not even US Treasuries.
There is a way to manage this environment: Embrace Finance 101. Recall the basics you learned in financial literacy class in high school, or in that one finance course you took in college, or while getting your MBA, or just from reading the classics on investing. Everything you need to know to manage this market environment is contained in a few nuggets of wisdom.
Markets are efficient after all. This does not mean that prices are always “correct,” just that they generally reflect the available information. When investors learn that software firms’ products may be displaced by AI, their prices fall, as they did last week. They will probably go back up, then fall again, as the market learns exactly what AI will mean for the economy and who the winners and losers will be. It will be a messy process — but there will also be a lot of upside. That’s because the implication of the efficient markets theory is there is no excess return without more risk, and timing the market is nearly impossible (at least to pull off consistently). If you are in markets for the long haul, settle in for a bumpy ride. Odds are, it will pay off eventually.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
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