So this week the C word dominates all headlines as the virus spreads, people stockpile toilet paper and start to work from home. Markets are of course affected and the FTSE 100 is down by about 11% over the last month in the #CoronaCrash.
When you see empty restaurants, spare seats on the tubes, cancelled conferences and empty aeroplanes, it’s not a huge stretch to understand the very obvious fundamentals which make this at least short-term bad news for the companies which make up global stock markets.
What no-one knows is quite when the virus will be contained and whether the impacts will be short-lived and sector specific (eg travel and hospitality) or longer-term and generic as supply chains are hit.
Some of you have written to me to ask what I am doing. And I’m afraid my answer is as Boring as they come. Not much. Markets go up. And markets go down. If you are a long-term investor, the art is to learn to do nothing.
Balancing fear and respect for the perils of the stock market along with a healthy recognition of its long-term power is something we all have to learn. I’m going to share my story of how I learnt to weather the storms. This story starts 20 years ago as tech stocks were soaring and the dotcom boom was in full flight.
I invested for the first time in 2000 when I worked for Merrill Lynch Investment Managers in Australia. We were in a tech boom and all these shares in weird technology companies with funny names were soaring high. God, it was fun. I bought them all – even one called Sausage Software run by a spotty 20 year old with a red Lamborghini. ( I know, I know….) Not only did I buy them all, I borrowed money to buy them. This is known as margin lending – interest on this loan was tax deductible in Australia so it was relatively common practice. From very little, I built up about $30,000 of shares, with a loan of about $15,000.
People couldn’t get enough of these stocks - even taxi drivers were talking about them. I was riding the wave and on paper I was a rich-20-something. Then the bubble burst.
Every day, as the $30,000 turned into $28,000 and then $26,000 and progressively lower, my phone would ring and the broker would demand that I paid off some of the loan. The amount I owed was too high compared to the value of the shares. I didn’t earn very much and didn’t have much cash so paying the loan back became quickly impossible. The stress and anxiety of those weeks was huge.
When your broker also works for Merrill Lynch, there is literally nowhere to hide. The worst moment was when he got in the lift, came down to our floor, and walked towards our area saying – “Has anyone seen Macca?” - and I literally panicked and hid under my desk until he had gone!!!! I can still picture the carpet today, as I huddled there, broke and embarrassed and realised quite what a prat I had been.
I leaned a really painful and important lesson that year. Don’t buy stuff you don’t understand. Buy shares in companies which make things and make profits. Don’t be greedy. Don’t think you’re a stock market genius because you have a good year. Don’t buy things with borrowed money you can’t afford. Stick with funds to spread the risk around and avoid individual shares unless you really understand the shares you buy. And when taxi drivers talk to you about shares, it’s time to take profits. Yup. Be Boring.
I also saw things bottom out and then recover. I saw this again in 2008. If you have bought a broad range of investments in basically sensible companies, they come back. Remember that red numbers on a screen don’t actually mean anything until you press that ‘Sell’ button. And if you can afford to keep on chipping in little and often and averaging out your buy price…that’s not a bad strategy to have. Just remember this – the FTSE 100 is 11% cheaper today to buy than it was a month ago.
That’s all for this week on the money front. I leave you with a picture of what happens if you let your children do the #stockpileshop as you finish off a work project, only shouting out a request for drinks as you type. You end up with cat food, Sherbet Dip Dabs, champagne, potatoes and Fruit Sherbets. That’s us sorted then!
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