Our thoughts on the current market turmoil as of 13 March 2020

Where do markets stand as of 13 March 2020

We are in the midst of a global market crash. Around the world – stock, bond and other markets are falling as participants scramble for safety. There is really no place to hide aside from holding cash – even Gold, which is normally a safe haven, is down.

What to do?

We know that telling you not to panic is not helpful. So, we rather say – try not make any decisions that are heavily influenced by your emotional state. One needs a clear head and a logical thought process during these difficult times – plus a solid plan. During times of extreme stress and uncertainty, markets will often not act rationally – remember, markets are mainly driven by human buyers and sellers and during such times emotion and panic can run high. Therefore, trying to make sensible investment decisions, even calmly and with logic, is incredibly tricky and fundamentals are not necessarily reflected in prices due to the extreme levels of uncertainty.

So often the best thing to do, is nothing – just wait out the storm. Realising you have the wrong investment strategy just means that if you change it now – mostly in the form of de-risking, will result in you locking in permanent capital loss which you can never recover from. Markets are down on average 30% from recent highs and could fall further, but could also just as easily recover some of the losses quickly – it is impossible to forecast these moves. During the 2008 Global Financial Crisis, peak to trough market falls were in the -40%’s but generally the rolling 1-year numbers for market crashes are in the high    -20%’s to mid -30%, so this crash is now comparable to major historical crashes.

Markets will recover though; it just takes time – on average a few years. In rare cases, like Japan in the 90’s, where markets fell from levels which were on the other end of extreme, it can take much longer.

However, once the bottom has been reached, which is only known after the fact, the market can provide incredible buying opportunities over a 5-10year view. A market that falls 40% will need to gain 67% from bottom to recover; while a 30% fall requires a 43% gain.

If you are a client of ours then you will have a plan and the starting point for your thoughts is to ask yourself why should you deviate from your plan now? Our investment process and investment strategies are designed to look through market shocks. If you have a short investment time horizon then you will be relatively conservatively invested and the impact on your investment strategies will be less. If your time horizon is longer and your strategy targets growth, then your investment strategies will feel the impact of this market crash much more – but our growth strategies are designed for the longer term and we know that over longer time periods the market do go up, and after crashes, do recover.

What we know:

  • No one saw this coming.
  • No one can reliably forecast where markets are going from here in the immediate future.
  • Market history and a long-term perspective are the best we have to estimate the future

Whether markets fall further or even if this is the bottom, what is highly probable is that countries are going to go into recession, which means more that one’s investments may be impacted.

If you haven’t done so before, now is the time to look at your monthly budget and see where you can rationalize. If you have an emergency saving account – we recommend a minimum of 3-6 months of expenses. Consider where you may access shorter-term funding if needed. We never recommend drawing on long-term and retirement savings – these would be a last resort in very extreme circumstances.

Looking forward

Like we said, no one saw this coming, no one can forecast where market will be in 1 month or possibly even 1 year. History tells us that the average time to recovery is a few years, but this is influenced by factors such as how high markets were before the crash and the reason for the crash. Ignoring for a moment your existing investments, any new investments you make over the coming years will experience stellar growth plus the benefits of dividends added to the price rises – so there is opportunity and a silver lining in times of despair.

We are watching the markets carefully and will keep you appraised of developments. If we see risks which do not fit within our acceptable range of outcomes for our investment strategies we will re-evaluate and decide if we need to make changes.

At these times you need to trust in diversification; know your investment strategy and why you have it, and most importantly be patient and try to not act impulsively, whether it’s buying or selling.