HAVE WE ALL GONE MAD??

 

  • There is no reason to panic and buy toilet paper, there is no information there is an undersupply, we have local production yet people are fighting in supermarkets!
  • Face masks provide little protection yet they have sold out, I have spoken to a large supplier and the mask recommended does not stop the virus, the virus particles are smaller than its filter. He is selling 100,000’s to corporates and telling them this information! Hey what about glasses and gloves?
  • Washing your hands thoroughly with soap is the best precaution yet we have sold out of hand sanitiser, the 2nd best precaution! Wash for 20 seconds, the time it takes to sing “happy birthday to me” twice!

Markets are not rational and one of the reasons is that people become emotional.

Today there is Corona hysteria, “should I sell my shares and sit out the fall and jump back in at the bottom of the market decline?”

Sharp rises and falls in the market are known as “market volatility”, as we have discussed with all our clients they are an expected part of the market cycle.

Hence our opinion is the same as every expert we discuss the matter with and read updates from i.e. investment markets experience corrections regularly for various reasons so despite the recent volatility and correction in equity markets, we do not recommend allocating capital away from growth assets and into cash. It is extremely difficult to time the market and taking this type of action may cost portfolios dearly over the long run.

So please call if you would like to have a discussion as we welcome the contact, but equally remember the advice you have received continues to hold true:

 

  1. Volatility is normal: If you are invested in a managed share portfolio you have a long term strategy that anticipates volatility as part of the cycle.
  2. Stick to your plan: This means unless your circumstances change then staying invested is the logical and sensible thing to do.
  3. You cannot time the market: It is generally accepted that experts cannot time the market, so if you have once then you may have been lucky.  Consider this: a. The market does not act rational, you cannot know when it is at the bottom or at the top, there is greed, emotions, fear, and even corruption at play. b. You start to allow your emotions to lead your investment decisions once you start to try to time the market, generally this is accepted as not ideal. c. This actions costs you directly as you are not earning when you are out of the market, there is no yield/dividends etc. plus you incur transaction costs upon exiting as well.
  4. Recovery from these corrections has historically occurred, this is reflected in the longer-term performance of investments but it can take markets time to stabilise.
  5. There is not information to date saying this event is any different, you have professional investment experts managing your portfolios and the majority of our clients have a defensive bias on their growth investments.
  6. Yes the precedents for coronavirus are limited, but the lesson from SARS was that markets usually recover and will tend to bottom out around the time when peak cases start to decline.
  7. Clients in the midst of a portfolio change are buying and selling in the same market which is not the same as realising a loss.

Seek professional advice, get yourself an investment adviser so you receive a tailored investment solution. If you already have then this is the hard part of the cycle where you ride out the storm.

Here are some fun facts about people timing the markets:

 

  • The professionals cannot pick a fall, a 2018 study by the International Monetary Fund analyzing 153 recessions across 63 countries from 1992 to 2014. The researchers found that economists only predicted 5 of the 153 recessions by April of the preceding year.
  • The self-advised investor is not that successful, the average stock investor dramatically underperforms the stock market as a whole. In 2018, for example, the average stock investor lost 9.42%, according to DALBAR, even though the S&P 500 lost less than half that amount at 4.38%. Data from DALBAR shows that from 1996 to 2015, the S&P 500 offered an annualized return of 9.85% a year, but the average investor’s return was only 5.19%.
  • Consider fictional investor Amy. Amy invested $50,000 in the S&P 500 at the peak of the market, just before each of the four worst market crashes of the last 50 years:

Investment 1: $50,000 in December 1972 (just before a 48% crash)

Investment 2: $50,000 in August 1987 (just before a 34% crash)

Investment 3: $50,000 in December 1999 (just before a 49% crash)

Investment 4: $50,000 in October 2007 (just before a 52% crash)

Even though she had terrible purchase timing, Amy didn’t panic sell and automatically reinvested her dividends. By May 2019, her $200,000 had grown to $3,894,503.

(source of facts and example, moneycrashers: 8 Reasons Why You Shouldn’t Try to Time the Market )

 

General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC WM accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement with VJC WM for this purpose.