Fall before the rise??
“The True Investor welcomes volatility.. a wildly fluctuating market means irrationally low prices will be periodically attached to solid businesses” (Warren Buffet)So during the month of October, a not unexpected sell off in the markets and more specifically tech has seen the largest one month slide of 2018, giving the Panic Monkeys and Doomsdayers a platform to make a lot of noise.
We did see a similar pull back to this in February and March, much of which was subsequently forgotten when at the end of September the Dow was still up 7%, S&P 8.4% and Nasdaq a whopping 16.6% year to date. The equity markets are volatile, this cannot be denied, its about whether, as wise Warren’s comment above supports, you see this as a good or a bad thing……so raw data being:
Oct YTD
Dow Jones -5.1% +1.6%
Nasdaq -9.2% +5.8%
FTSE -5.1% -7.3%
Nikkei -10.0% -4.6%
SSE -7.4% -21.0%
Dax -6.5% -11.4%
One factor which has caused the falls is the US interest rate rises, with The Fed and Don not seeing eye to eye. A consequence being the Greenback continuing to gain strength….gaining against all major currencies bar the Yen as follows:
Oct YTD
GBP +1.4% +3.3%
EUR +2.3% +5.5%
JPY -0.8% +0.2%
AUD +1.6% +9.9%
CNY +1.5% +7.2%
So what should we do when we see a year’s worth of gains wiped out in one month keep calm or panic? Each individual’s situation is different. As you go along your investing life, your risk appetite changes. If you have a longer term horizon 5 years plus then these market falls are just a blip
Hopefully you will have already locked some gains in this year, especially if your time horizon is shorter. As I have said before selling a fund at a profit is easy, its just where to reinvest. It may be that those profits were moved away from the stock market into other areas. The key is the right holistic asset allocation which includes bonds, property, cash, some alternatives and having the right path and guidance to get you where you want to be.
So this recent “blip” (not crash) has basically happened because share valuations seemed a bit toppy especially in technology. With interest rate rises, cash became a little (and I do mean a little) more attractive (those towards the end of your investment journey) and the continuing US dollar strength and upcoming Mid terms added to the mix.
But fundamentals are still good. Earnings are still good. It’s just in some cases the expectations had got a little ahead of themselves. Take Amazon as a case in point. It saw record profits (good) and a 29.7% increase in year on year revenue (good). But because the top-line number of US$56.6 billion missed its expectations by $500m (less than 1%) – the stock fell by 8% in a day. Markets are over emotional places at times. That said the stock still remains up over 40% year to date, why – because its a good business and growing
US GDP growth remains at a decade high 3%. Unemployment remains low – for me all of this tells me now is a time to buy not to sell.
As always there are going to be different views on the market, that is understandable and I can respect that. However one of my clients recently sent over a message from a competitor “predicting” a market crash. Being “bearish”…believing the markets will continue to fall is fine as long as this is backed up by proper rationale. The word “predicting” should not be in any Wealth Manager’s vocabulary while he carries out his work. Like most people I have the occasional bet, maybe on a golf major or a weekend accumulator on the Premier League fixtures. This is where my predicting ends….and guess what I’m not that great at it…why because no one is. It is mostly a futile exercise aside form having a bit of fun on your Bet 365 app or at a roulette table
You are always going to to have the half full / half empty split in all walks of life and cynics will say I need to be half full as I get paid for assets under management. But at this time I genuinely can’t see further than cheap growth stocks in the US and super cheap Asian share prices. I shall be taking advantage of this dip personally, as will my clients….and as long as he practices what he preaches…so will the greatest investor of all time……
We did see a similar pull back to this in February and March, much of which was subsequently forgotten when at the end of September the Dow was still up 7%, S&P 8.4% and Nasdaq a whopping 16.6% year to date. The equity markets are volatile, this cannot be denied, its about whether, as wise Warren’s comment above supports, you see this as a good or a bad thing……so raw data being:
Oct YTD
Dow Jones -5.1% +1.6%
Nasdaq -9.2% +5.8%
FTSE -5.1% -7.3%
Nikkei -10.0% -4.6%
SSE -7.4% -21.0%
Dax -6.5% -11.4%
One factor which has caused the falls is the US interest rate rises, with The Fed and Don not seeing eye to eye. A consequence being the Greenback continuing to gain strength….gaining against all major currencies bar the Yen as follows:
Oct YTD
GBP +1.4% +3.3%
EUR +2.3% +5.5%
JPY -0.8% +0.2%
AUD +1.6% +9.9%
CNY +1.5% +7.2%
So what should we do when we see a year’s worth of gains wiped out in one month keep calm or panic? Each individual’s situation is different. As you go along your investing life, your risk appetite changes. If you have a longer term horizon 5 years plus then these market falls are just a blip
Hopefully you will have already locked some gains in this year, especially if your time horizon is shorter. As I have said before selling a fund at a profit is easy, its just where to reinvest. It may be that those profits were moved away from the stock market into other areas. The key is the right holistic asset allocation which includes bonds, property, cash, some alternatives and having the right path and guidance to get you where you want to be.
So this recent “blip” (not crash) has basically happened because share valuations seemed a bit toppy especially in technology. With interest rate rises, cash became a little (and I do mean a little) more attractive (those towards the end of your investment journey) and the continuing US dollar strength and upcoming Mid terms added to the mix.
But fundamentals are still good. Earnings are still good. It’s just in some cases the expectations had got a little ahead of themselves. Take Amazon as a case in point. It saw record profits (good) and a 29.7% increase in year on year revenue (good). But because the top-line number of US$56.6 billion missed its expectations by $500m (less than 1%) – the stock fell by 8% in a day. Markets are over emotional places at times. That said the stock still remains up over 40% year to date, why – because its a good business and growing
US GDP growth remains at a decade high 3%. Unemployment remains low – for me all of this tells me now is a time to buy not to sell.
As always there are going to be different views on the market, that is understandable and I can respect that. However one of my clients recently sent over a message from a competitor “predicting” a market crash. Being “bearish”…believing the markets will continue to fall is fine as long as this is backed up by proper rationale. The word “predicting” should not be in any Wealth Manager’s vocabulary while he carries out his work. Like most people I have the occasional bet, maybe on a golf major or a weekend accumulator on the Premier League fixtures. This is where my predicting ends….and guess what I’m not that great at it…why because no one is. It is mostly a futile exercise aside form having a bit of fun on your Bet 365 app or at a roulette table
You are always going to to have the half full / half empty split in all walks of life and cynics will say I need to be half full as I get paid for assets under management. But at this time I genuinely can’t see further than cheap growth stocks in the US and super cheap Asian share prices. I shall be taking advantage of this dip personally, as will my clients….and as long as he practices what he preaches…so will the greatest investor of all time……
