When considering the development of man, it’s said that adversity gives momentum to the versatile, and so it is with investment success. Today's markets are extremely taxing, and a safe passage through the chaos to the other side will require adaptability and flexibility in our decision making. Not, however, to the point of being fool hardy. A saying that I think fits our present situation is, “Ancient man who had no concerns about entering a deep dark cave sight unseen, or casually leaving the protection of his thorn bush laager at night to investigate strange noises, probably left no descendants”.
Today, as investors, the question that we must all be considering is whether this recent fall in the value of funds, followed by a small rise, is the lead into a more substantial correction. In other words, some markets have already suffered a 10% drop from last year’s highs, will this turn into 20%, 30%, or more over the coming months? I hate these situations, nothing appears to have changed on the political and economic fronts to cause the markets to make the small rebound after the fall, and yet they do just that. This could be a temporary rise before it continues downwards and is sometimes called a “dead cat bounce”. I prefer the description which credits the market with an evil brain, “it tempts us back into the water with a small rise before throwing in the live toaster!”
If, over the last few weeks, you have been selling funds to create a solid cash buffer, then perhaps like me you will be relaxed about a further substantial fall, similar to the ones that occurred in 2008 and 2020. Unfortunately, there is still the pain to be endured whilst the value of your remaining portfolio continues to fall. But nothing however can match the joy to be experienced when the markets finally finish their free-fall (however long that takes), and you are then able to buy back at fire sale prices and watch the gain. I was fortunate and lucky enough to experience this on both of the above years.
Please remember that I am a rank amateur and there are other distinguished investors like Terry Smith and Warren Buffett, along with many other managers and financial experts, who believe the opposite. They say you cannot time the market, and “buy and hold” is the correct approach. Then eventually, in the “future”, everything will come good. This may be true for these multibillion-pound managers who are not mobile, and cannot just shed their fund holdings, but for you and I as individuals, I am not so sure. We are fortunate to have the weekly numbers and graphs to assist our monitoring of the situation and help in our decision making, we can be mobile. I have always believed that the best person to look after your own money is yourself.
It has been an eye opener to see how many sustainable funds, and those from many other sectors, have been investing into the “high-tech” companies in the USA. The correction of these company prices has had a dramatic downside effect on fund managers such as Baillie Gifford. It is not so long ago that their funds headed up our sector analysis and featured in both our portfolios. The Scottish Mortgage Trust (Baillie Gifford) is a strong and trusted leader in the Global Investment Trust sector - it has now lost 40% in three months. It was one of my long-term favourites, but it is no longer, and three weeks ago it became cash, along with many of my other funds!
At the moment, I do not believe it to be the right time to second guess the direction the markets are going to take, so for the moment I will sit on my hands. There is one area however that still interests me, and that is the energy and commodity funds. The likes of TB Guinness Global Energy and the two funds JPM Natural Resources and BlackRock Natural Resources. They have resisted the present correction and hopefully that is a good sign.
These days as I get older, my memory seems to be getting worse and worse. Not to brag, but today I went into another room and actually remembered why I went in there. It was the bathroom, but still….
Best wishes and good luck with your investments.