I trust you are keeping well, staying healthy and maintaining your sanity. I personally have settled into a routine of running most mornings, before starting work, then providing some welcome relief for my wife, looking after our two children (Henry and Holly) during lunch before returning to my work. I am a big believer in routines.
In my last update I spoken about the Bull and Bear market, which I wanted to expand on.
If you review historic bull and bear markets, they indicate strong returns are often seen after a fall in markets, which suggests returns over the next 10 years will be higher than before the fall. But if you sell and are out of the market on the best days in markets, it can significantly reduce the returns on your investment portfolio. For example, missing just 10 of the best trading days in equities can reduce your annualised returns from 7.6% to 3.3%. Missing additional gains over 20, 30 or 40 days, is even more detrimental to your returns and your financial plan. Therefore, I recommend all my clients to stay invested, and to remember the stock market rewards the patient.
I recently stumbled across these words from former Professor of International Public Health Hans Rosling. Although I will not pretend I have read his book (Factfulness), this speaks volumes to me as I think about the current challenge that our world faces:
“Critical thinking is always difficult, but it’s almost impossible when we are scared. There’s no room for facts when our minds are occupied by fear.
“Remember that the media and activists rely on drama to grab your attention. Remember that negative stories are more dramatic than neutral or positive ones. Remember how simple it is to construct a story of crisis from a temporary dip pulled out of its context of a long-term improvement. Remember that we live in a connected and transparent world where reporting about suffering is better than it has ever been before. When you hear about something terrible, calm yourself by asking, if there had been an equally large positive improvement, would I have heard about that? Even if there had been hundreds of larger improvements, would I have heard? Keep in mind that the positive changes may be more common, but they don’t find you. You need to find them.
“Think about the world. War, violence, natural disasters, man-made disasters, corruption. Things are bad, and it feels like they are getting worse, right? The rich are getting richer and the poor are getting poorer; and the number of poor just keeps increasing; and we will soon run out of resources unless we do something drastic. At least that’s the picture that most Westerners see in the media and carry around in their heads. I call it the overdramatic worldview. It’s stressful and misleading. In fact, the vast majority of the world’s population lives somewhere in the middle of the income scale. Perhaps they are not what we think of as middle class, but they are not living in extreme poverty. Their girls go to school, their children get vaccinated, they live in two-child families, and they want to go abroad on holiday, not as refugees. Step-by-step, year-by-year, the world is improving. Not on every single measure every single year, but as a rule. Though the world faces huge challenges, we have made tremendous progress. This is the fact-based worldview.
I had previously written that I have felt like Boris Johnson reiterating my key messages in terms of, investments diversification, cash reserve, keeping cost low, and investment time frame. Now I feel a little like Tony Blair. Diversification, Diversification and Diversification! When the media turns its attention to the stock markets, they usually talk about the FTSE 100 (100 biggest companies in the UK) as their point of reference. Whilst you would have experienced a fall in the value of your investments, the FTSE 100 is a bad comparison. Due to the diversification of assets within your portfolio you will find that your portfolios are not as volatile as the FTSE 100.
With the well published economic effect of the coronavirus, the slump in the oil price has influenced the stock markets and slipped under the radar a little, and what only can be viewed as school ground behaviour. OPEC (Organization of the Petroleum Exporting Countries) had a meeting with Russia to try and decide how much they should reduce oil production by, in an attempt to maintain a high price (remember, lower oil production, increases demand, raises/maintains prices). Russia disagreed, as they knew that their old foe United States required an oil price in the region of $60-$70 a barrel for their own shale gas to remain competitive. Russia knew a sustained period of cheap oil undermines the whole shale gas industry in the States, so they would not come to an agreement with OPEC. With Saudi Arabia (member of OPEC) being allies with the United States they decide to increase oil output (remember this is at a time when they wanted to decrease output), which reduces the oil price further. Whilst Russia could cope with an initial reduction in oil price in order to meet its objective of undermining the United States, a further reduction in the oil price was not financially sustainable for Russia. Basically, Saudi Arabia saying to Russia, come and have a go if you think you are hard enough. At the time of writing it looks as though talks are reopening.
As always, I am happy to have a conversation with my clients at any point, so please do not hesitate to contact me. Likewise, if you have friends or family who are concerned about their own investments, no matter how big or small, I would be more than happy to speak with them.
Kind Regards
Daniel Midwinter FPFS
Source: Fidelity International Period: 31/12/04 – 31/12/19
