I am writing to you, to try and provide some sensible communication in the midst of all the noise, panic and irrational behaviour we are witnessing in both our daily lives and the financial markets.
I am not diminishing the seriousness of what we are all facing, we’re still heading deep into the pandemic – this is a once in a lifetime public health emergency. In the investing world this is called a ‘Black Swan’, which is something you thought was impossible, until you see one. The last experience of this was the Financial Crisis of 2008-09.
Stock markets (and the humans involved) have acted as we’d expect, negatively. The stock market is a story about businesses, the story changes, the prices change. At the moment, the story is very negative for many, many businesses and when the story changes the prices will change again.
The stock market overreacts in both directions – always has and always will. 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’ from either of those emotions. Anyone who tells you they do, run for the door, it’s not an untruth, it’s a complete lie.
The longer-term impacts (if any) on our lives, human behaviour and therefore related businesses, cannot be predicted at this stage and will unfold over the next months/years.
You already have a well diversified portfolio, ideally suited to your long-term goals and carefully put together with your input and discussion. It is built to cope with the deep temporary declines we’re experiencing now.
We have always told clients storms will come along…well, now there’s one here. We never leave home during the storm, unless life depends on it, so why would we do it now? We wait until it passes. We exercise patience.
I and many of my colleagues here, like most of you, are invested in the same areas and with the same managers, so our life savings have felt every drop of the decline. We have ‘skin in the game’ – it’s painful to see our portfolio’s decline, but as students of history and more importantly human nature, knowing that the correct thing to do, is ‘do nothing’. That will 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.
As 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.
If you’re investing every month this is a deep temporary market ‘sale’, which is good news for your automatic monthly investment premium.
There will be some good consequences from the crisis, such as:
- Conscious spending – time to ask, 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 (safely).
- Re-examine your Goals – a focused desire to becoming financially free sooner (investing more from a younger age).
Second Opinion Service:
If any of your friends, family or colleagues wish to speak to a financial professional at this unprecedented time, please do pass on our details. We have a professional obligation to help as many people as we can to make wise financial decisions.
Keep safe, keep positive and know that humanity is a powerful force you don’t want to vote against.
Be balanced about the Negative Events World Service (NEWS), whose job it is to serve up any form of dramatic information – whether correct/true or not.
If you wish to discuss anything please call us, because as always, we are here for you.
Andy Dyson & Thompson & Richardson Financial Planning Team
P.S. You will see many predictions over the forthcoming weeks and months, many talking with certainty that 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 and probably always will.