The extreme market volatility we have experienced in past few weeks can be very uncomfortable. It can be hard, after significant market falls, to stay rational and level-headed. Yet it’s very important at times such as this to see the bigger picture.
A Coronavirus plan is being implemented; minimise the infection rate, mobilise medical resources and, for governments, provide a lot of support. Government and central bank support has graduated from billions to trillions. Various packages are being launched to support business as normal activities are suspended either by choice or instruction.
The effect of the coronavirus crisis on the economy and society in general around the world has already been profound. Governments have announced the closure of schools, universities, restaurants, bars and other social venues. In many countries, severe restrictions have been placed on freedom of movement in an effort to limit the spread of the virus.
Many businesses have ceased activity in response to a drastic reduction in demand. Some specific industries have felt the impact of the coronavirus more than others. For example, hotels, cruise lines and airlines have been badly affected to name a few.
While taking a view on investment and markets I will highlight that past events are not a guide on future events.
It is safe to say that the market is already pricing in severe disruption to the economy and financial markets. As we have seen, in previous cases when the market was in this state, prices subsequently recovered. Those investors who held on and rode out the turmoil were eventually rewarded. Moreover, trying to time the onset of recovery would have been extremely difficult at the time – just as it is right now.
Although at the moment all are prioritising health rather than wealth, investors will eventually return to wealth. That’s how markets work at times of extreme stress, turning on the darkest day.
It is worth remembering that at times like this, trading is likely taking place between investors who may be stressed, or are forced to sell, and those who have a longer-term perspective and a disciplined approach to asset allocation. Investors therefore benefit from ensuring that their exposure to riskier assets is consistent with their appetite for risk in general. This highlights the role financial planning contributes in helping our clients navigate the markets in these turbulent times.
“The stock market is a device for transferring money from the impatient to the patient”
Warren Buffet
For the foreseeable future we plan to conduct most of our work remotely and so communication is best by email. All companies we deal with are still operational although response times are not up to the usual standards, so please bear with us. We’re making every effort to adapt quickly to this unprecedented situation and I’d again like to thank you for your patience and understanding.
I hope that you, your family and friends remain safe and well over the coming weeks.
Barra Gorman FPFS
Chartered Financial Planner