I’m about as bearish as I’ve been on the medium term prospects for the stock market. Like many others, I feel that the stock market isn’t fully reflecting the risks to the economy from the lock-down measures currently implemented around the world. It is already evident that the magnitude of the economic shock is unprecedented. And that’s even if we manage to lift the lock-down measures soon. It seems unlikely that we will to do so fully given the high probability of the dreaded ‘second wave’. In the meantime the economy will continue to suffer. Why then does the stock market seem to be defying gravity at the moment?
I, like many investors, am glad to be seeing the back of that quarter. The Coronavirus has caused a rapid crash over the last month in most stock markets across the world. This has left the FTSE 100 down 27.9% and the S&P 500 down 22.9% over the last three months. My portfolio hasn’t fared a great deal better at 18.4% down. It doesn’t look like we are quite out of the woods yet.
I have now fully recovered from Covid-19, assuming that is what I have had over the past week. The main symptoms were severe fatigue and shortness of breath. This was debilitating enough to excuse me from doing any work or household chores but almost imperceptible if I remained completely immobile, say reading Twitter or watching Netflix in bed. My lungs felt like they took a pounding but have recovered quickly. So all in all not the worst virus I’ve had the pleasure of hosting by any means. I’m thankful to be getting off relatively lightly.
Given the extraordinary times, I’ve updated again below with my latest thoughts on the economic outlook and what this means for my game plan. I’ve also updated on my purchases from last week.
Stock markets have taken another steep tumble since my post last week. People say that the bottom of a market crash happens when everyone gives up, at the point of maximum pessimism. My emotions have taken a bit of a pounding too and I’ve started to feel the urge to capitulate. Maybe that means we are near the bottom? I fear not. I’m trying my best to remain level-headed in deciding the best course of action from here. This probably isn’t helped by the fact that my wife and I are locked down in self-isolation in our London flat with mild symptoms of the virus…
Last week was one to remember! After a big fall on Monday led to comparisons with the October 1987 crash, we had another massive fall on Thursday after markets were unimpressed by Trump’s response of restricting flights from Europe. The result is that we’ve now had the fastest ever market crash by some margin – just 20 days to fall 20% from the highs. Exciting stuff, but a little harrowing if you are fully invested as I am. Continue reading
Well the market has certainly woken up to possible risks from the Coronavirus contagion since my last post! We now seem to be in the midst of a full-blown market panic, with the market yoyoing up and down (well mostly down) several percent every day, as investors overreact to news about the virus, its effect on businesses and the government’s response. To top that we now also have to contend with news of a collapse in oil prices, which have fallen almost 30% over the weekend following the break down of OPEC agreements.
All my gains from what had previously been shaping up to be a good year have been eroded and my portfolio is now squarely in the red. Continue reading
I’m sick of viruses. I’ve had more than my fair share over the past few weeks. The beginning of my honeymoon was blighted by Rhinovirus – just a humble cold, though a nasty sore throat coupled with incessant air conditioning resulted in sensation of a shard of glass lodged in the back of my throat for several days. For the end of the honeymoon, I was graced by the altogether more unpleasant presence of Norovirus in some dodgy seafood and am still recovering from the after effects. Unsatisfied with ravaging my physical health, the viruses have decided to go for my portfolio as well, with the outbreak of the Coronavirus epidemic in China halfway through my trip. (Other than that we had a magical time, thanks!) Continue reading
The classic, though now dated, ‘right answer’ to the job interview question, “what is your biggest weakness?” is to say that you are a perfectionist. The thinly-veiled subtext is that perfectionism is actually a strength, though perhaps one that has been taken a bit too far: “I’m just so focused on making sure I get everything right all the time that sometimes I work too hard (sigh).”
Of course, attempting to achieve the unachievable can lead to harmful outcomes for you and those around you. But there is more to it than that. The underlying drivers of perfectionism affect pretty much everyone and can interfere with your ability to make rational decisions. In investing, where so much is about maintaining Spock-like rationality, this is probably one of the most common and important psychological issues investors face.
The stock market seems to be brimming with optimism at the moment. After the assassination of Iranian bad dude Qasem Soleimani led to an extremely short-lived panic on Monday (which only seemed to affect the US market after hours), the markets are buoyant now that further escalation is looking less likely. At the moment I’d guess that we’re probably in for another good year with the likely re-election of Trump and a likely improvement in global economic growth in the horizon.
The much hoped-for Santa Rally did indeed materialise, to round off a decent final quarter of a decent 2019. This is especially welcome following a difficult 2018 for equities. I’m fairly happy with my portfolio’s performance of 33.5%, though this has been achieved in the context of strong performances from the market as a whole. The FTSE 100 was up 12.1%, the FTSE 250 up 24%, the S&P 500 up 32% and the Stoxx Europe 600 is up 23%.