So, not to beat about the bush, the last ten days have been brutal on world stock markets.
We also have far greater access to world news at just the click of a button, and a never ending supply of news alerts on our phones - not always a good thing as news stories are designed to attract readers, making it all too easy to focus on sensationalist headlines and get gloomy, disheartened or uncomfortable about the reported danger to life, society or wealth of these threats, the latest being the coronavirus.
However, world and health events happen throughout history. Over the past 20 years alone, there have been many material events that we may have felt uneasy about at the time. During such times – at least from a market perspective - it can help to look at the past to ease our concerns. The past may not of course repeat itself, but markets have been remarkably resilient, as you can see from the chart below.
Figure 1: The relentless rise of markets over time, despite world events
Data source: Morningstar Direct © All rights reserved. MSCI ACWI NR USD in GBP (developed and emerging markets)
It’s important to remember that in an efficient market current world events and investors’ views are already factored into share prices. The market as described every night on the news, as something having feelings, direction, almost a consciousness, doesn’t exist. All the market does is match buyers and sellers, and when many people choose to sell, they will temporarily outnumber buyers, and the price will fall until that equilibrium is restored.
There will always be an equilibrium because you and I cannot buy a share unless someone else is selling. We both have the same information yet make the opposite decision. That goes on millions of times every day, and the aggregate of all those millions of individual decisions is what you see and hear reported. As hard as it can be, we need to remember to keep our emotions in check, believe in the robustness of our portfolios and continue our investment journey with a long-term view. Future news may make the outlook brighter or gloomier. No-one knows.
A recovery on stock markets will not have to wait until this all ends but will start when some semblance of control is seen to be in sight. When markets fall fast, they can recover fast. Staying invested has proved to be the best plan in past downturns and is likely to be the best plan now, as the opposite strategy usually manages to miss most of the recovery, when it comes.
‘This too shall pass’ as the legendary investor John Bogle used to say.
So finally, sit tight, trust the spread and the defensive element of your portfolio, please call your Financial Planner any time for a further discussion, and stay safe.