MAGGIE LAKE: Hopefully, you've started getting a better understanding of the game of investing and your individual approach to it. We talked at length about this in the first part of this course. And this is something you will need to keep exploring because it's right at the heart of everything. It's about being honest about why you're buying or selling an asset and not getting pushed and pulled around by price action and your own emotions. Let me explain.
There's an age-old quote that in the short term, the market is a voting machine. But in the long run, it's a weighing machine. Or put another way, every security will eventually make its way to its true value over time. But it will often exhibit volatility on its way there, fooling and wrong-footing many along the way.
For example, you might have quite rightly predicted the 2008 crash because you saw what was happening in the US subprime market in 2006 and 2007. But there were several false starts to that thesis. And it wasn't until late 2008 that it really played out.
Very often, good ideas failed to make money because time frames are misunderstood. And that's what we're going to address here, and more specifically, the dominant market drivers across different time horizons. Now, let's make one thing clear from the start. In our definitions, we think of traders as being nimble and opportunistic, looking to make money from short-term sentiment changes and news flow. And on the flip side, we define investors as those looking at the broader macro picture, expecting any thesis to take years to play out. And then we have a blend of the two.
And this leads us perfectly into our introduction to market drivers. The recent successful long-term investors and short-term traders so happily co-exist in the same markets is because what drives markets are exactly that, short-term and long-term trends and everything in between. You just need to decide which time horizon aligns with your personality and objectives and hone your skills accordingly.
And by the way, you can be both. Jamie McDonald, who you'll hear from in the upcoming discussion, ran a portfolio for several years and certainly had some positions that lasted years and some that lasted just hours. You just have to the trend of each investment you're playing and what's driving the security on that time horizon.
So before we head into the discussion, let's do a quick summary of what the market drivers are and how you should be thinking about them. We divide market drivers into three, the longer-term drivers and the associated trends and themes are typically called secular. And these can last a decade or longer, driven by fairly seismic shifts, such as demographics, debt, technology, and globalization.
Clear case studies and secular trends are the US Baby Boomer generation entering the workforce in the 60s and 70s and now starting to exit it, or China entering the world stage in the early 2000s when they joined the World Trade Organization, the WTO. We'll examine both and many more throughout this journey.
Secondly we have the cyclical drivers in trends. Their influence is anywhere from a few months to a few years and is very much economic i.e., trends driven by the business cycle but also triggered by policy changes and liquidity. For instance, the immediate aftermath of the COVID pandemic saw a policy response that was unprecedented in scale and injected vital liquidity into the economy and the market. This, coupled with the growth in demand for certain sectors of the economy, saw a cyclical upturn that supported major asset classes for the next 18 months.
And lastly, we have the shorter-term moves which we call tactical. This is when you're looking to make opportunistic returns over a few days to a few weeks. These drivers are more to do with sentiment and news flow. For example, a press story comes out about a company scandal and its shares fall 20%. Now, you do your homework and realize, that move was more emotional than it was representative of the value lost. So you buy for the bounce back, looking to make 10% over a day or so.
Another example is temporary market volatility around economic data releases. These are the kinds of drivers we're talking about when we say tactical or short-term. Here's the crucial point. So please hear me out.
Whether you are a pure trader who likes to watch markets every day, buying and selling opportunistically, or a pure investor, happy to zoom out and check in from time to time, or somewhere in between most of us, just know that what drives markets happens over very different time horizons, changes all the time, and sometimes there are exogenous shocks like wars and pandemics. As we saw in the last module from Jared Dillian, this property is known as nonstationarity. And it causes market regimes to constantly change.
You need to be aware of that because in the moment, you might see the price move against you and be put off, even though it's still on course for the longer-term trend you're playing. But at the same time, your comfort in that trend may prevent you from seeing that the regime of the market has shifted, which will naturally have an impact on your investment. In this part, we'll dive deeper into all of this.
First, Jamie, James and Roger will start with a discussion about the broader implications of market drivers and regimes, sharing a few examples from the past and some stories from their professional backgrounds. Then I'll walk you through some of the most important segments from interviews we've conducted in the past. This should provide you with additional examples and viewpoints from a broad range of investors and analysts we've interviewed on Real Vision.
Lastly, Roger will walk you through a few workshops on how to set and track some of the drivers yourself. By the end of this part, you will what secular, cyclical, and tactical drivers are and why it's important to monitor them and their associated trends. You'll also begin to develop an understanding of how market regimes and assets interact and do not exist in isolation.
It's super-important that as investors, we can appreciate these patterns and relationships. And finally, you'll be able to monitor the secular, cyclical, and tactical trends as they play out in markets and use what you observe to formulate an investing idea. Be sure to check out some of the resources we've added below this video, which will ease you into some of these topics and provide you with in-depth case studies. Let's dive right into the discussion with the guys.