BABC member Verus shares Sound Thinking: Balancing Paranoia and Complacency

BABC member Verus shares their latest Sound Thinking. CIO Ian Toner explores the current economic expansion through the lens of basic human instincts of paranoia and complacency.

Successful investment is about balancing these two instincts, as they both have a place in the decision making and information assessment process that we apply as investors.

How long will the expansion last?

  • Real GDP growth figure provide no evidence of excesses that might traditionally lead to a reversal to the downside.

  • The level of unemployment relative to the labor force participation rate is still low.

  • While there are plenty of events that could derail economic growth, current evidence suggests that concerns over the expansion coming to an end simply due to the length of time it has been running are excessive.

  • Despite this a downturn in the economy is always possible, and continuing volatility in the capital markets is quite likely. On balance we believe investors should keep leaning into risk where possible.

Balancing complacency with paranoid is always important, but for now we are more comfortable assuming that current market paranoia is overblown, while keeping a watchful eye out for temporary downturns.

Read more about balancing the two conflicting instincts, and what it means for economic forecasting.

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