Nervous times this week as what I technically refer to as a ‘stock market wobble’ unfolded. So let’s have a dig into what it means.
Things started to tumble on Tuesday and we saw red flickering charts on the news. From an all-time FTSE100 high of 7,778 just a few weeks ago, things had fallen to about 7,140 by tea time on Tuesday. Or in other words, £1,000 had turned into about £920. As I write this we’re sitting at similar levels.
Economists will disagree about most things, but the normal convention is that a fall of around 10% is a ‘correction’ and a fall of more than 20% in a short space of time is a ‘crash’. So we’ve seen a severe wobble or a minor correction.
How to respond to a wobble?
It’s not unusual that the very thing which makes something appealing is also the thing which makes it dangerous. (I’m thinking about Johnny Depp, but let’s get back on track.)
Shares and ISAs are popular because we’re not locked in. We can get our money whenever we want. But I think it’s interesting to compare our responses to property market downturns and stock market corrections. How many people run home when property prices fall and say “Property prices have fallen by 4%, let’s sell the house. Kids, pack the tent.” It’s painful and cumbersome and expensive to transact property. So we tend to have a much healthier relationship with its short-term ups and downs. The accessibility of the stock market can be our downfall.
As much as I’m an impulsive creature of action, stock market wobbles are a rare time when I re-write Elvis’s line to “ A little less conversation and a little less action”. The best advice I can give anyone in such times is to forget their online trading password. (Assuming that you’re in a healthy balanced diet of pretty mainstream stuff, not exotic weird stuff or chasing the latest ‘hot’ trend.) And although this will unleash a barrage of angry Twitter messages, the “just ride it out” approach is why typically less-confident female investors tend to outperform their more trigger-happy male counterparts, who find it harder to resist the urge to tinker*.
Gobble the wobble?
Imagine you wanted to buy a Le Creuset pan. (Apologies for the achingly dull middle-aged middle-class analogy…..) Something that would last and still be with you in 10 years. Would you feel more inclined to buy it when prices were steadily rising or when John Lewis announced a 10% off sale? I find this analogy another interesting example of our dysfunctional attitudes to risk and loss when it comes to stock markets and long-term investing.
If you have some money in cash, or are wondering whether to invest now, of course it’s nerve-wracking. But you’re buying the same thing for a lot less than you would have paid last week. So there is something to be said about buying in when things are shaky-although this takes cojones of steel. Setting up a monthly direct debit is another way to make sure you never buy in at the market’s peak.
There are pundits and gobs-for-rent who love to say I told you so. That they called the correction. That they knew when to sell. That a crash is imminent. These people are mostly not worth listening to and typically have a book to sell.
Things don’t rise forever. And I suspect we’ll see more turbulence ahead. But as a very old lady said to my friends’ kid, who casually asked her over tea if she was going go die… “Yes darling. But not today.” As she calmly poured the tea. No-one knows when it’s coming, just that it will come at some point.
I've been asked to write a piece for a national paper about how to invest a smallish sum and get started. My advice will be the same this week as it would have been in 2008 and the heady bull year that was 2017. Pick a well-diversified global spread of investments. Stick with reputable managers of funds if you don't have time to research individual stocks yourself. Avoid spicy “risk-free” cons or fads such as bitcoin. And save as much as you can as often as you can as early as you can.
Boring n’est-ce pas? You can see why they don’t ask me to write a weekly column! But to quote George Soros – “good investing should be boring.”
Have a great weekend. I’m out for half-term next week, so there will be a temporary halt to transmission. Back in 2 weeks.
Have a great weekend
*Cowardly disclaimer: I’m just repeating what data objectively shows so don’t shoot the messenger!
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