Why investors shouldn’t buy assets just because they’re cheap

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Financial markets are inherently cyclical and there is a strong degree of herding. A good case for an investment naturally attracts others and valuations might become secondary. At times, this will be validated by further information, but sometimes it results in over-reach. Gilt mayhem Other influences matter too. Many institutional portfolios are subject to limits on their risk or volatility budgets and large movements can result in them shifting funds across asset classes or using options and derivatives to manage their positions, with unexpected consequences across capital markets. An infamous example was the sell-off in UK bonds (gilts) in 2022,...