What to do now the Stock Market has crashed.

FOR DISCUSSION ONLY. NOT TO BE TAKEN OR CONSTRUED AS ADVICE.

In short: do nothing.

If you need the money in the next few years, you shouldn't be in Equities anyway. I'll post a sample time bound and dynamic asset allocation at the end.

While there is no doubt that there has been blood on the tracks due to coronavirus, the markets have always recovered. A very young BB was in the City in October 1987, and that saw a massive drop in a few days:

1585056859905.png


The following graph circles this in red, while showing what happened subsequently. I've not been able to find a long term chart that goes up to "now". (It also shows

Over the long term, the Crash simply did not matter. Likewise the 1995 - 2001 Dot Com Crash, and the 2008 Financial Crisis, which are also shown:

1585054841983.png


The markets have priced in an economic disaster, and we are seeing unprecedented action taken by the ECB, HMG and the Fed. As soon as Congress agrees on how to spend the $2 trillion, that money will be in the system and markets will most likely move upwards. . The Fed has signalled unlimited (QE) funds will be made available and the markets also like this.

I'm a big fan of "Buy and Hold". This is one of the key factors behind the approach of Dimensional Fund Advisers. Put simply - given you cannot time the market, why bother trying to? For deeper insight into Dimensional, have a look at this website.


There is, IMO some very good opinion within this (unfortunately ad heavy) piece from Martin Lewis, with some salutary figures about how badly you can get burnt if you *do* try to time the markets:


Mr Lewis then asked investment expert Chris Justham for this thoughts on the query.

Mr Justham said: "I would agree, and I would say that maths and history are friends here, and they certainly support what you said. Because, if we look at some of those numbers, and we rely on facts - because emotion tends to take over here so lets rely on logic to rationalise this.

"If we look at the last 20 years, and we look at 5,000 days between 1995 and 2015, so that includes the dotcom crash, that includes the financial crisis - which seems like an awful long time ago now.

"In those 5,000 days, if you'd remained invested, that'd have been a nine and a half percent annualised return. It'd have gone up and down by an average annualised nine and a half percent.

Miss 10 of the best days, that nine and a half percent drops to six percent. Miss 40 of the best days, tht nine and a half percent goes actually negative.

So, if I then tell you, that six of those 10 best days actually become during the first two weeks that follow the 10 worst days, what does that tell us? Well, it tells us, knee-jerk reactions hurt.

We shouldn't panic and sell, however uncomfortable it feels, and that if we actually zoom out and we look at years rather than weeks, trajectory is upwards.

So, don't panic. Stay the course, however uncomfortable it feels, because maths and history are rooting for you."

Mr Lewis added that while there are no rights or wrongs on this matter, the aforementioned suggestions are general guidance of what a person would do.


The fact is, if you switched to cash "now" you would crystallise your losses and most likely miss out on any price recovery. Which I firmly believe will come.

I mentioned a sample asset allocation strategy above: t his is one I am a big fan of:


1585056092543.png



 

AlienFTM

MIA
Book Reviewer
I was close to realising the value of my Standard Life shares, which had been very much on the up since the election. I'll sit tight (have done for a decade or more). They'll get back there.
 

AlienFTM

MIA
Book Reviewer
Interestingly the BBC just reported the biggest ever close of business jump, of 9% added to the market.
 
FOR DISCUSSION ONLY. NOT TO BE TAKEN OR CONSTRUED AS ADVICE.

In short: do nothing.

If you need the money in the next few years, you shouldn't be in Equities anyway. I'll post a sample time bound and dynamic asset allocation at the end.

While there is no doubt that there has been blood on the tracks due to coronavirus, the markets have always recovered. A very young BB was in the City in October 1987, and that saw a massive drop in a few days:

View attachment 459297

The following graph circles this in red, while showing what happened subsequently. I've not been able to find a long term chart that goes up to "now". (It also shows

Over the long term, the Crash simply did not matter. Likewise the 1995 - 2001 Dot Com Crash, and the 2008 Financial Crisis, which are also shown:

View attachment 459287

The markets have priced in an economic disaster, and we are seeing unprecedented action taken by the ECB, HMG and the Fed. As soon as Congress agrees on how to spend the $2 trillion, that money will be in the system and markets will most likely move upwards. . The Fed has signalled unlimited (QE) funds will be made available and the markets also like this.

I'm a big fan of "Buy and Hold". This is one of the key factors behind the approach of Dimensional Fund Advisers. Put simply - given you cannot time the market, why bother trying to? For deeper insight into Dimensional, have a look at this website.


There is, IMO some very good opinion within this (unfortunately ad heavy) piece from Martin Lewis, with some salutary figures about how badly you can get burnt if you *do* try to time the markets:


Mr Lewis then asked investment expert Chris Justham for this thoughts on the query.

Mr Justham said: "I would agree, and I would say that maths and history are friends here, and they certainly support what you said. Because, if we look at some of those numbers, and we rely on facts - because emotion tends to take over here so lets rely on logic to rationalise this.

"If we look at the last 20 years, and we look at 5,000 days between 1995 and 2015, so that includes the dotcom crash, that includes the financial crisis - which seems like an awful long time ago now.

"In those 5,000 days, if you'd remained invested, that'd have been a nine and a half percent annualised return. It'd have gone up and down by an average annualised nine and a half percent.

Miss 10 of the best days, that nine and a half percent drops to six percent. Miss 40 of the best days, tht nine and a half percent goes actually negative.

So, if I then tell you, that six of those 10 best days actually become during the first two weeks that follow the 10 worst days, what does that tell us? Well, it tells us, knee-jerk reactions hurt.

We shouldn't panic and sell, however uncomfortable it feels, and that if we actually zoom out and we look at years rather than weeks, trajectory is upwards.

So, don't panic. Stay the course, however uncomfortable it feels, because maths and history are rooting for you."

Mr Lewis added that while there are no rights or wrongs on this matter, the aforementioned suggestions are general guidance of what a person would do.


The fact is, if you switched to cash "now" you would crystallise your losses and most likely miss out on any price recovery. Which I firmly believe will come.

I mentioned a sample asset allocation strategy above: t his is one I am a big fan of:


View attachment 459294


Start drinking heavily.
 

mercurydancer

LE
Book Reviewer
Interestingly the BBC just reported the biggest ever close of business jump, of 9% added to the market.
Dow Jones up substantially too, currently + 1500 points. . If Congress agree the $2 trn support package, that will leap further.
 
I know nothing about the subject. Would now be a good time to buy if you have cash available? Logically, if the market over a long enough period will always recover then hoovering up cheap shares now makes sense.

I have no intention of doing so (there's a hefty chunk of mortgage I'm trying to get rid of) but wondered if my simplistic interpretation holds water.
 

Nemesis44UK

LE
Book Reviewer
Interesting post, Mr BB. However, I do think you should change your avatar back to Daniel Craig to assist in visual recognition.
 
I know nothing about the subject. Would now be a good time to buy if you have cash available? Logically, if the market over a long enough period will always recover then hoovering up cheap shares now makes sense.

I have no intention of doing so (there's a hefty chunk of mortgage I'm trying to get rid of) but wondered if my simplistic interpretation holds water.
If you don't need the cash for at least five years, now could be good. I'd wait a little while for confirmation of upside, though.

But I'd urge you to clear your mortgage first.
 

elovabloke

ADC
Moderator
Again people asking and worse still giving, financial advise on an anonymous multi media web site.
 
I think that anyone who wants to invest in the short term, should consider Toppet Holdings Ltd.

Just leave your desired investment capital in a hessian sack (used, none-sequentional notes and coins only) round the back of Wimbledon train station.

For this you are guaranteed a dividend of 2p* annually, and a chance to vote for the AGM**.

You know too want to.

*2 pisstaking comments
**Annual Grot Magazine of the year award.
 
Again people asking and worse still giving, financial advise on an anonymous multi media web site.
I do this stuff for a living, I have a very good idea what I'm talking about and I'm happy to discuss such matters.
 

3ToedSloth

Old-Salt
I do this stuff for a living, I have a very good idea what I'm talking about and I'm happy to discuss such matters.
Unless you have a crystal ball, there are still big risks. Market movements like we've seen in recent weeks are once in a decade events. Nobody knows how long this crisis will last or where the markets will settle. Buy and hold doesn't work if you invest in a company that goes bust in six months.
 
This is what I received, I’m not overly worried, but do expect a loss over the next 12 months.

“It has been another incredible week in investment markets. Perhaps the most violent (from a volatility perspective) in history. All assets have moved in extreme ways… even government bonds, that are supposedly “risk-free”, lost considerable value. Interest rates have been cut to all-time lows, and Government spending has exceeded anything we have previously seen. Wow! Take a pause to breathe. Perspective is required!

We are all set for a recession. However, this time will not follow the typical pattern, caused by financial imbalances or a market bubble. This time is different. We are about to enter a policy led recession, or a kind of stay at home recession if you will. Governments globally are trying to protect their citizens, understandably trying to defeat this enemy by limiting its spread and asking their populations to alter their lifestyles and reduce contact with others where possible. This week the world has realised that there is going to be a major hole in economic growth on a global scale, and therefore the drive for liquidity (to get the world through this tough time) has caused wild moves in asset prices, and unprecedented policy support to help shore things up.

Unlike many recessions, this time we have a lot more information. It is not hidden in the financial sector… we can all see it as it affects us on a daily basis. Through our own decisions it is clear that discretionary spending will be hit the most severely. Travel, leisure and retail are the industries facing the greatest challenges. This is not a slow realisation that we are entering a recession, it is abrupt. Peoples spending habits have already changed drastically, just this week.

Recessions are usually “V” shaped. They happen gradually and then recover slowly. In this case however, it is likely to look more like a “U”. The decline is quick and vertical. Government action has been prompt and coordinated, and as changes in behaviour and warmer weather start to take effect, the virus should reduce to a point where normal behaviour can be reintroduced. It will be slow to start, though people will likely return to work quickly, with the corresponding rebound in activity as rapid as the fall. In recent weeks we have started to see this already in China, and it will shortly follow in Italy along with the rest of continental Europe.

That isn’t to say that in the post-recession everything will be back to the way it was. There will almost certainly be some permanent damage to the economy, along with changes to behaviour that will stay with us for a long time. Whilst some spending such as moving to a new house or buying a car, might be deferred, much will be lost (holidays, cinema trips, restaurant visits). These discretionary sectors are therefore most at risk, and there will be some casualties. Social change will also be widespread. An acceleration in video conferencing might reduce our carbon footprint, and improved personal hygiene and an appreciation for more effective planning are just basic examples.

The picture we have of the upcoming recession is therefore quite clear. There are some gaps to fill in, such as how many businesses really can survive this, and how the re-introductory phase will work. It is unusual though, to know such a lot about what is about to come, and how we will come out of the other side. This stands us in good stead.

Coming on to markets, this means that at some point they will start to re-appreciate the forward outlook, rather than living in the now. No one knows when this will be, but it will happen. In the meantime, we have seen volatility in our portfolios, but nothing like in the wider markets. We know that we have a preference for quality assets, with big balance sheets, that will come out the other side. In addition, we carry a good slice of liquidity (note last week’s blog). This means we won’t need to sell assets that have lost significant value if clients need cash or income, and it means we have good cash levels to purchase more quality investments as their price sells off. We have been adding to positions this week. So, whilst performance numbers are down in the short term, we feel over the coming weeks and months there is an excellent forward opportunity.

A stay at home recession is certainly on the way, but it may be short-lived, and a go out recovery may not be as far around the corner as we think. As ever we are watching every move.”
 
Unless you have a crystal ball, there are still big risks. Market movements like we've seen in recent weeks are once in a decade events. Nobody knows how long this crisis will last or where the markets will settle. Buy and hold doesn't work if you invest in a company that goes bust in six months.
That's why you don't buy A company.
The events are once in a decade, indeed, and the fourth time I've seen them.
 

3ToedSloth

Old-Salt
That's why you don't buy A company.
The events are once in a decade, indeed, and the fourth time I've seen them.
You've previously seen a global pandemic that shut down the western world with threat of force from the state for leaving your own home coupled with the fastest stock sell off ever? You know how long this will last and the magnitude of the impact on every country and company in the world? You know for a fact the virus won't come in for a deadlier second round next winter like the Spanish flu? You sure that there won't be social and political changes once this is over?

The DotCom bubble didn't kill your granny on a trolley in a hospital corridor and leave you with permanent lung damage.

I'm not saying you'll be wrong. I'm saying that you can't be so certain that the market will recover so quickly this time.

1585084182232.png
 
Maybe the central banks can return the favour and bail out the businesses/workers this time round, if they get poorer as a result, should we show the same level of concern as they did post 2008?
 

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