25 Aug 2015
Markets are scared… They are behaving irrationally, and reading current headlines will make it very difficult for investors to think rationally and remain calm.
With one day falls as large as we’ve seen in many years, it’s no wonder we’re all feeling a little unsure of what’s coming. At the open last night, the DOW was down over 1,000 points (around 6%), then within a couple of hours had recovered to be less than 1% down. That’s irrational.
Henry Cavanna, Head JP Morgan (US) - "We are dealing with a serious loss of investor confidence and nothing will change that in the near term… But we are setting the stage for a market based on more reasonable valuations. I think we are in fair value territory and may be near undervalued territory…"
Barrie Dunstan, Financial Review - “Now is the not the time to sell and anyone who thinks they can pick the precise time to re-enter the market is attempting the equivalent of catching falling knives... The US market is part of the way through a major devaluation from an overpriced level... It will be valuations, perhaps even lower than now, that will eventually tempt buyers back…”
Those quotes aren’t from this week’s press. These are from 2002, when a 20% fall in market followed the “dot com” bubble.
History has a funny way of repeating itself (as shown in this ASX chart) and every time it does, we see a redistribution of wealth from panickers to investors.
What to do ?
The bigger the headline, the more people listen; the media has a business to run, sell more papers, achieve higher ratings etc. It is fair to say the media’s interests are not aligned with an investor's interests. Staying calm is hardly a headline that will arouse anyone’s interest.
We expect heightened market volatility to continue from here. But we also expect markets to stabilise and take another leg higher as cash heavy investors finally get the pull-back they’ve been waiting for to put their funds to work (remember rates are at historic lows both here and in the US).
Central bank policy remains accommodative and supportive of higher equity markets. Patience and a long term investment mindset are key.
Please be very careful of general advice… Now more than ever, one size does not fit all, not everyone is in the same financial situation, not everyone has the same tolerance to volatility, and not everyone has the same time horizon.
We would urge you to call us for a review of your current situation if you feel in any way concerned with any of your investments.
Please take the time to ring, email or make a time to visit us with any questions or concerns you may have. In these trying times, we are here to provide you with help and advice to assist you in getting through these turbulent times.