Investors should not be making forecasts about coronavirus
If ever there was a need to be reminded that stock markets respond to news (especially of the bad variety), the onset and spread of coronavirus (COVID-19) is it.
For investors the rapid reshaping of investment markets should serve as a sharp reminder of the futility of making short-term forecasts. Perhaps unsurprisingly markets have reacted severely and very quickly to the world appearing to go into near lockdown with Trump’s decision to ban flights from Europe showing that governments are not immune to making snap decisions.
As investors, times like these are very difficult as all our instincts shout… DO SOMETHING!! But the biggest danger for investors is do exactly that. For most of us the natural temptation is to get out of the market OR conversely increase the risk of our portfolio because we ‘feel’ that the market has overreacted. Either way one group will be right; the other will wrong – the reality being that both sides are merely guessing.
Just bear with me here and let’s just say my advice was in fact to act and do something… what exactly would this advice be based on?
Firstly, it would involve a prediction on what we think might happen next. Doing so would be complex. It would be far more than anticipating the spread of the virus (itself an improbable feat); but there are second and third order effects – what decisions the politicians will make, how people in those countries will behave and, crucially, how investors will react. Even if we had perfect foresight of how things would evolve over the coming months, it would still be impossible to confidently predict the market and economic implications.
The new coronavirus outbreak (and the reaction to it) has precipitated an economic slowdown. Naturally companies throughout the world will now earn less over the coming weeks and months and this is reflected in the sharp falls in global stock markets.
It is however worth remembering that the share part of your portfolio ‘part owns’ over 8,000 different companies of which the vast, vast majority will survive this crisis and will live to prosper another day.
It is also worth remembering that most of you have around 40% to 50% of your portfolio in cash and bonds. These over the past few weeks have either held their value or risen slightly in value (source: Standard Life and Nucleus Wrap Accounts).
To conclude, the message is, as ever, to stay calm. Try not to look at your portfolio online (it’ll only make you jumpy and makes zero difference to how it is performing) and remember that we will get through this and normal fundamentals will return.
Lastly, if you are feeling anxious please do not suffer in silence. If you do wish to speak to me, please do phone Katie and she will schedule some time for us to speak over the phone.
Keep calm and carry on!
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