7th October 2022

This month I thought I would provide my view on the current market volatility and give a little information on human behaviour.

I’m sure I don’t need to remind you of the various contributory factors to the current Market volatility but perhaps it is appropriate to point out that none of these factors seem to be a permanent change; Russia will eventually stop its war, inflation will eventually reduce and energy prices will eventually come under control.

The last month has seen portfolios drop by the biggest monthly amount for the year – albeit they have recovered a little since the 1st and there seems to be a lot of support for the FTSE100 at around the 7,000 level.  It has fallen below this a few times but quickly recovered, for example during Covid the FTSE100 dropped to below 6,000.

The main cause of September’s volatility was political concern.  The Market and indeed the International community expect to see stability within the UK.  With the new Government wanting to take a new approach, this has caused concern and the Market and currency has reacted negatively. Again, this is something that eventually with either be proven to be the right approach or will be changed – either by a new Chancellor, PM or Government.

There is a lot of publicity on the weakness of Sterling but it is relevant to note that whilst it has dropped against the Euro (by approximately 3.5%), it has fallen much more against the $Dollar but this is mainly down to the $Dollar strengthening.  This isn’t all bad news as far as companies are concerned because a number of the FTSE100 companies generate their profits Internationally and these are based in $Dollars.

In times of such volatility, I have found – speaking with over 40 years’ experience of looking after investments – the best course of action is to sit tight and ride out the storm.  The lack of recommendations this year to make any changes to your portfolios has been a conscious one because it would be foolish to try and predict what the market will do from one day to the next.  In the last few days we have seen the FTSE drop by nearly 3% one day and then go up the next day by nearly 2%.  If we chose the wrong day to move investments, you could suffer further losses because of movement like this, and being out of the Market for a day or two could cost you a percent or two.

This brings me to an interesting article I read recently on investor psychology and I thought it worth sharing a couple of points raised.

It focuses on the emotion of investing and concluded that whilst our financial time horizon is long as we may be increasing wealth over 5, 10 or 15 years, our emotional time horizon is always short.  As a result, many private investors buy high and sell low.  The selling low is often a reaction to emotion rather than financial influences.  Nobody likes to see their investment drop month on month but having a realistic timescale, (we always emphasise 5 years minimum) means there is time for investments to overcome any negative movement.

I well remember the crash of 1987 and listening to a fund manager from Henderson.  He said that the Stock Markets do not go up in a straight line, they zig-zag.  We are currently experiencing a zag and need to wait for the next zig.

The information provided in this report is based on our own opinion and offers no guarantee that our expectations will be met.  Past performance is no guide to future results.  As always, should you have any concerns you wish to raise, please do contact us.

 

Best wishes

 

Ian Pennicott APFS

Chartered Financial Planner