COVID-19 Update

We’re still deep in the pandemic, this is a once in a lifetime public health emergency. In the investing world this is called a ‘Black Swan’, something you thought was impossible, until you see one.

Stock markets have acted as we’d expect, negatively. The stock market is a story, the story changes, the prices change. Now the story is very negative, when the story changes the prices will change again. The stock market overreacts in both directions. This is because the markets feed off two powerful human emotions, that of greed and fear. We don’t know with foresight when the market will ‘turn’, anyone who tells you they do, run for the door, it’s not an untruth, it’s a lie.

Our clients have diversified portfolios, ideally suited to their long term goals. Built to cope with the deep temporary declines we’re experiencing now. We’ve mentioned in the past a storm was possible …well, now it’s here. We never leave our car during the blizzard. We wait until it passes. Be patient.

Our advisers are also invested so their savings and pension funds have also felt every drop of the decline, we have ‘skin in the game’, it’s painful to see our portfolios decline, but more importantly we know that the correct thing to do is ‘do nothing’ to see us all through this. We have enough to deal with through the change and disruption of our lifestyles, let’s not compound the issue by making grave financial mistakes with our investments. The nature of risk is that you don’t see it coming.

Now for some good news. Going into this crisis we could not have been in a better position economically, a decade plus of prosperity, unemployment at historical lows, businesses with more cash than they’ve ever had and the personal balance sheets of individuals at a high. There’s never a ‘good time’ for a pandemic, but if we could have chosen a point in time, this would likely have been it. We also have a globally connected world and have all the utilities and resources to address this head-on. When the stock market rises you don’t ‘win’ money, just like when it declines you don’t ‘lose’ money. You only lose money when you commit the worst financial action an investor can make, selling a portfolio in a declining market. This is the action reserved for the DIY investor and the financially failed investor.

World renowned fund manager Warren Buffett says:
“The stock market is a device for transferring money from the impatient to the patient.” Successful investors are patient, failed investors are impatient.

Following a decade-plus of generally rising markets, a meaningful downturn in stocks has unfortunately arrived. We don’t know how bad it will be or how long it will last. We do know that without advice, investors will make costly mistakes. We’ve seen 13 corrections and 8 bear markets in global equities in the last 40 years. That’s about one every other year…So hang in there. This too shall pass. The average time period for a bear market is 1.3 years vs 7.9 years for a bull market, hopefully this will help calm the nerves.

There could be some good consequences from the crisis, such as:

  • Conscious spending, do I really need these things/items in my life
  • Focusing on what’s important, people to spend your time with, places to go and things to achieve
  • A focused desire to becoming financially free sooner (investing more from a younger age)

We never like to make predictions, but it does look likely we’ll be heading into a global recession. Recessions are part of the natural business cycle. The stock market is usually ahead of the economic cycle, however no one really knows. Don’t let the media scare you now with the big ‘R’ word. The economy expands and contracts, it’s what it has always done.

Keep safe, keep positive and if you wish to discuss anything please call your adviser.


Data and insights from Brewin Dolphin