After a long period of seemingly never-ending gloom, on Monday of last week we turned on our TVs to be told that the Pfizer/BioNTech vaccine trial showed an efficacy of around 90%, far in excess of most scientist’s wildest dreams - there had been talk of anything over 50% being a good result. And then, just a week later, we hear that the US firm Moderna, has developed a vaccine providing close to 95% protection against Covid. The way the financial markets have responded to this news, along with a benign US election result, you would think that Christmas has come early!
There is no denying that these results are fantastic news for us all, although I suspect, once the logistical challenges associated with vaccinating half the worlds’ population sinks in, the euphoria of the last week or so may abate somewhat but there really is a light shining in the tunnel now and life after Covid is definitely drawing closer.
With the above in mind I was very disappointed to read in Money Marketing magazine this morning that many non-advised investors had sold investments during the very worst of the pandemic.
According to the research, approximately 1.38 million retail investors sold £10,000 or more of their investments during the early stages of the crisis, and 531,900 people sold £100,000 or more of their holdings.
In terms of what people did with the funds, 59 per cent left it in cash savings, 31 per cent used it to pay for living costs and 29 per cent to clear debts.
Oxford Risk head of behavioural finance Greg Davies says: “Many of the investment decisions retail investors make are for emotional comfort, and in a normal year this can on average cost them 3 per cent in returns. Driven by the Covid-19 crisis, stock market volatility levels have been greater this year, so the losses will be higher.”
Davies said those investors who pulled money out of the markets in March will already have lost much more as they lost when the markets dropped, and many have missed out on the rebound since. “Many are also likely to find it emotionally difficult to get this money reinvested for the long-term and so may lose out on even more foregone returns in the long-run,” he adds.
The research reveals that despite stock markets having recovered much of their losses in recent months, of those investors who cashed in some of their investments at the start of the crisis, 29 per cent have not reinvested any of this money back into the markets.
Oxford Risk chief executive officer Marcus Quierin adds: “There are many behaviours common with investors during volatile and uncertain times, and they can be tempted to focus too much on the present and feel compelled to do something even when sitting tight is the best solution. This means they can fall into the trap of selling low or buying high, for example, and the cost of this on average is around 1.5 per cent to 2 per cent a year over time. Those worried about falling stock markets should remember that they only turn paper losses into real ones when they sell.
“Retail investors should avoid watching the markets day-to-day as this increase anxiety and remain focused on their long-term plans and ignore much of the background noise that can tempt them into making the wrong investment decisions.”
Regular readers of my ‘Round Robin’ e-mails will recognise much of what has been said above.
For graphical proof that sitting tight through this volatile period (so far at least) has been the best strategy, please see the following chart which shows how a selection of our Portfolios have performed since the market bottom on 23rd March.
The sharp rises in just the last week demonstrate how important it is not to miss those good days when they come along, a strategy of trying to time when to come out and when to go back into markets usually doesn’t match just sitting on one’s hands and accepting the long-term nature of this type of investing. As I am very fond of saying, ‘When all looks grim, just put your tin hat on and hide behind the sofa, things will get better in time!’ Or, to quote Churchill, ‘When you are going through hell, keep going!’
Let’s hope for more good news from the other vaccine trials around the world and keep our fingers crossed for an eventual end to these lockdowns so that businesses can get going again. I fear there may be a few setbacks yet but I am definitely more optimistic looking at the medium term, than I have been for some time.
I look forward to seeing you all on the other side of lockdown but as always, if you have any questions about any finance related matter, please do not hesitate to contact me at any time.
With best regards,
Yours sincerely
Graham Ponting CFP Chartered MCSI
Managing Partner
