Those of you who have invested for long enough will be familiar with the emotions of equity investment which today feels far more like the market downturn in 2008, the so called “Credit Crunch” when the world nearly ran out of money, than the fall caused by Covid. Every reason for Bear markets or crashes is different, but investors all go through the same emotions seen below in the chart. There comes a point when panic selling by investors overtakes fundamentals causing shares prices to fall further than they should.
We are now near that point of panic when investors fear their investments will go to zero . This is when irrational decisions are made, driven by fear not logic. But history is on your side. Markets go up more than they come down. Bear markets, defined as when a market falls more than 20% can last for quite significant periods of time as they did in in the late 60’s and early 70’s and again following the Technology crash in 2000 and the aforementioned Credit Crunch in 2008. After each of these the markets continued their rise and are significantly greater than before these events. Despite the current volatility which may feel worse for those investors who have only been in the markets for two or three years, it is worth pointing out that the S&P 500 index is still up +75% over the last five years and is currently trading on a P/E ratio of 15 times earnings for 2023 at the lower end of its valuation range over the last ten years. No one knows what the next few days or months will bring but we can say with some degree of confidence that looking back, with the benefit of hindsight, the current volatility will look like another blip in the long term growth of the markets. As the old saying goes, those who panic sell now are likely to have the opportunity to ‘repent at leisure’.
Commentary by James Scott-Hopkins, Managing Director, Irongate
The value of an investment can go down as well as up.
You may get back less than you invested.
Past performance is not a reliable guide to future performance.
The opinions expressed are those of Irongate, this material is not a recommendation, or intended to be relied upon as a forecast.