I think the announcement from the Prime Minister last evening was widely expected and according to a survey this morning, 94% of those asked felt this was a proportionate response to what we are facing, I agree. The evidence from Italy is that a state of lockdown has reduced the rate of infection and the subsequent deaths. It’s early days to claim a 2 or 3 day reduction points to a clear trend but at least it provides some hope and it does follow on from similar experiences in China and South Korea.
Markets have responded well this morning but it’s doubtful we are out of the woods yet, particularly in the UK. I would expect the rate of infections and deaths to increase over the course of the next 2 weeks, as all those that are likely to present with symptoms over that time period, will already have been infected. Let’s then hope that we will start to see similar results from the social distancing and isolation policies. I have a friend who lives in Spain and she says that after a week of ‘lockdown’, infections and deaths are still rising but they are hoping to follow Italy with some improving numbers soon.
Whilst writing I thought I would take this opportunity to share the following chart with you, which looks at global Bull and Bear markets since 1980. The chart has been produced by the US firm Vanguard.
What this chart shows us is that downturns are a feature of markets: they are not an aberration, they are not out-of-the-ordinary, they happen quite frequently and although it’s always something different that causes them, they are to be expected. Exposure to volatility and frequent falls in value, some of them severe, are the price we pay for the long-term growth of our wealth over and above inflation, and in excess of bank interest.
The chart also shows us is that every time there has been a sharp drop in the price of shares – a bear market – it has been followed by a prolonged period of rising share prices – a bull market – that far outweighs the earlier fall. Longer-term charts going back as far as 1900 show exactly the same thing.
Of course, there is no guarantee that this time will be the same, but think about this: when the worst is over, whether that be three weeks, three months, or three years, people will need to buy food and clothes, and they will want to go on holiday and change their cars. I suspect, as with every upheaval like this, the way we do some things will change – hopefully for the better – but the basic human instinct to improve one’s lot will not disappear.
“The investor who says, this time is different, has uttered among the four most costly words in the annals of investing.” †
And finally, a cartoon from US financial planner and artist Carl Richards, of the Behavior Gap
Your financial plan is a long-term strategy, looking decades into the future, I have no intention of letting that be derailed by what’s happening over the course of a few weeks or months.
But do please do let us know if you have any queries or concerns. That extends to letting us know if you are feeling unwell and don’t have anyone else to talk to. And if you have family or friends that are worried about their finances and don’t know where to turn, please put them in touch – we’ll help if we can, even if it’s just a listening ear.
And above all, stay safe! Your health and wellbeing are more important than anything else we could be talking about.
† John Templeton ¥ There’s plenty more excellent drawings on Carl’s website, if you’re interested.
Please note that past performance is not a guide to the future, the value of an investment and the income from it could go down as well as up. You may not get back what you invest.
As always, if you have any questions concerning this e-mail or any other finance related matter, please do feel to contact me at any time.
With kind regards,
Yours sincerely
Graham Ponting CFP Chartered MCSI
Managing Partner
