During the Eurozone crisis in the years following the 2008 financial crash, a moment was captured on British television that stunned BBC audiences worldwide. A Wall Street trader, Alessio Rastani, looked directly down the barrel of the BBC News lens at a concerned audience watching a ticker suggesting that a Greek debt bailout was imminent and calmly stated that he went to bed at night dreaming of another recession. The presenters' ashen faces, torn between making a comedic response and being aghast at the apparent callousness of what they had just heard, revealed the psychology of markets and sparked a debate that continues to this day.
In this week's blog, written in the wake of the worst-performing day in stocks since 2022, we observed a 4% slide in the NASDAQ, while the Dow Jones Industrial Average dropped nearly 900 points, or roughly 2.1%. The broader S&P 500 index closed - 2.7%. Again, we are examining volatility- what it signifies for some and what it represents for others- and why it serves as a tool to employ for the right purpose: profit from capital movement. Furthermore, we explore why markets offer a plethora of tools for those whose goals involve capital growth over fixed time horizons without utilising an active management approach.
The evident reason why some may dream of financial chaos is that volatility also increases liquidity, making it easier to execute trades efficiently. High trading volumes result in tighter bid-ask spreads, which reduce transaction costs. Furthermore, professional traders employ sophisticated risk management strategies, such as stop-loss orders and hedging, to navigate volatile conditions while safeguarding their capital. Additionally, volatility often coincides with significant economic events, earnings reports, or geopolitical developments, all of which traders can analyse to gain an advantage. Those who understand market psychology and have access to high-frequency software at source can profit from panic-driven sell-offs, just as they did from the euphoric rallies seen last year. The rougher the seas, the more incredible the surf, even if the consequences for Main Street evoke a general sense of seasickness.
The less debated element, and perhaps the more interesting one, is the purely psychological perspective. It's easy for a professional to tell a long-only investor that "buying the dip" in a highly volatile market is the solution to everything over time, as they operate from a position of psychological detachment. Money is structured to provide a societal survival mechanism; therefore, it has become hardwired to our sense of mortality. In contrast, a professional has cognitive detachment from that; they are playing with house money, and moral hazard desensitises these individuals to a point where they can make clearer decisions. Ironically, this clarity presents a massive advantage to their employers. However, it is nearly impossible for a traditional investor to replicate those decisions with their own capital. With a plethora of human emotions at play, you risk what your subconscious perceives as your security with every move you make.
So, where are we heading with this? There is a tool for every occasion, and P2P investing can serve as a strong diversification strategy during times of intense market volatility. Unlike stocks and other highly liquid assets, real estate-backed investments generally exhibit a lower correlation with public markets, providing stability when equities undergo sharp fluctuations.
One key advantage of real estate P2P investing is asset-backed security. Unlike traditional stocks, P2P real estate investments are linked to physical properties, providing a tangible value floor that reduces the likelihood of significant losses. Even in volatile economic conditions, real estate retains intrinsic value, and rental income or property appreciation can continue generating returns. Additionally, real estate P2P platforms enable investors to spread risk across multiple projects, asset types, and locations. This diversification helps mitigate exposure to any single property or market downturn.
In uncertain times, this predictable income stream makes real estate P2P a valuable hedge against market volatility while maintaining growth potential. This is why, when we go to bed at night, we dream of a thriving British economy that supports small businesses, builds homes, and aids the goals of our investors rather than indulging in gambling on the apocalypse and surfing the waves of the VIX.
Invest & Fund has returned over £300 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com
Don't invest unless you're prepared to lose money. This is a high-risk investment. You may not be able to access your money quickly and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more.