The markets erupted last Thursday morning on the news that the US Federal Reserve had finally decided not to reduce the amount of bonds it buys from the Treasury.
This technical decision saw equities and gold shoot up in a short space of time, while long-term government bond yields also rose.
The consternation was caused by the fact that it was the exact opposite of what many people had expected to happen and it scuppered many long thought-out investment plans.
An FE Trustnet poll asking whether investors were pleased with the decision was split almost 50/50 at the time of writing, underlining the difficulty people have unpicking what the decision means and how to position their portfolios.
The first difficulty for investors is working out what is going on: the terms used are technical, and seem to be designed to drive away the layman.
Essentially "quantitative easing" means the central banks are buying bonds issued by the government – and in the US also mortgage-backed securities.
Doing this creates money: the central banks create the money they use to buy these bonds at the stroke of a pen and swap that money for the bonds.
Banks can then use that money to pay off their debts, lend to businesses or invest, hopefully making them more secure and boosting the level of activity in the economy.
It also helps to keep the prices of the bonds high as it increases demand and therefore keeps the yield low. This has a knock-on effect on interest rates across the economy.
Tapering refers to the US authorities reducing the amount of bonds they buy and starting the slow exit from the policy.
Whether or when this happens is of fundamental importance to the price of all financial assets and therefore all investors’ financial success.
The money coming into the economy has kept interest rates and yields on bonds low. This has meant that investors have had to look to other assets that pay an income if that was what they wanted, and has kept money going into the shares of income-paying stocks, for example.
It has also produced another intended effect of supporting lending of money by banks to businesses, although this has remained at a lower level than politicians would have liked.
The result has been more money flowing into riskier assets such as stocks and emerging markets, giving investors greater confidence.
Emerging markets in particular benefited from the money pumped in by the central banks, which was being invested abroad by financial institutions.
However, when the Federal Reserve’s chairman Ben Bernanke began to talk about reducing the amount of bonds the bank would buy, this created an entirely different situation.
In anticipation of a reduction of the amount of money in the system, people began to sell out of emerging markets.
On top of this, many of the countries suffered as investors anticipated the US dollar would be worth more against their currencies as it became more attractive again.
The UK and US markets also started to slow down, following their rapid rise in the beginning of 2013, while prices on bonds fell and yields rose.
The paradox is that as the economy improves, the likelihood of quantitative easing being reduced increases, and thus the markets react negatively, hampering the economic recovery.
It is because of this negative feedback loop that the US authorities held fire on the reduction of the stimulus, judging that it was better to let the process run further.
Those investors who had expected tapering to begin and had positioned themselves accordingly would have lost out.
There are some who foresaw the move, however, saying that it was inevitable the Fed would retreat from its intention.
"We didn't predict the hold on QE yesterday per se, but we are not that surprised by the logic," said Chris Wyllie, chief investment officer at Iveagh.
"Markets forgot that there is a self-correcting mechanism at work here. Bond yields rise in anticipation of the taper, but as they rise, the taper itself becomes less likely because the Fed anticipates the braking effect on the economy of those higher yields."
A huge number of professional investors were more surprised, however, with many fund managers slamming the decision, both in terms of its effects and in that it seems to show policy being made up on the hoof.
Investors really have two choices in the face of such a volatile situation: trying to out-guess the professionals or trying to cover themselves against both possible scenarios.
Rob Gleeson, head of research at FE, is firmly in the second camp.
Only last week he controversially revealed that he was retaining a weighting to conventional bonds in his model portfolios, which many experts regard as questionable.
The expectation was for bond prices to crash when quantitative easing was withdrawn, but Gleeson said it was prudent to be prepared for the opposite scenario too, which is exactly what has come to pass.
For analysts such as Gleeson, the episode underlines the importance of diversifying your portfolio and not investing according to short-term headlines.
