Having broken through an all-time high in April last year, Britain's benchmark index, the FTSE 100 closed at its lowest level in more than three years in the second half of January. Global financial markets have had a rocky start to the year, shaken by the depressed oil price, coupled with poorer demand for other commodities impacted by China’s slowing growth.
Given the sensational headlines, investor confidence is not surprisingly in the doldrums. A lack of confidence can end up becoming a self-fulfilling prophecy. In early January, a senior figure at RBS published a series of controversial comments that warned that stock markets could fall by up to fifth and investors should “sell everything.” The next day, major indices around the world suffered further falls indicating that comments such as these can contribute to market momentum, helping create the disaster that had been feared in the first place. Yet you can be certain that swathes of investment bankers (even perhaps at RBS, who subsequently stated that the negative opinion was not their house view) will be benefiting, when everyone else panics.
Knee-jerk reactions are certainly fueled by scare stories but the truth is China's growth for 2015 was a touch weaker than it was in 2014, but hardly a disaster. The Chinese economy, like elsewhere in Asia, alongside the UK, the US and Europe, are all growing. Consumer demand globally is still healthy and of course there are many beneficiaries of cheaper oil prices.
Retraction of the level of growth rather than negative growth is what the markets are reacting to and volatility is likely to remain - but that isn’t all bad news. Investment managers will focus on the fundamentals and when asset prices are driven lower from panic selling, astute managers will seize opportunities to gain. Those that never forget that investing is not for the short-term rarely lose out over the long-term.
There is however, no doubt that economies will change. The rate of innovation is unsurpassed in human history with scientific and technological advances filtering through to the mainstream population at a significant pace. For example, whilst oil does more than provide energy, now we are increasingly capable of capturing energy from the large nuclear reactor in the sky, burning the black stuff to create energy could very much be frowned upon within a matter of decades. But that will not make it worthless.
Consider recent changes to the corporate landscape. Some of the largest companies in the world didn’t even exist a few years ago (e.g. Google & Alibaba), the world’s largest taxi company owns no cars (Uber), the largest accommodation provider owns no property (Airbnb) and the most popular media owner creates none of its own content (Facebook). All of these have a bearing on investment markets.
At Lowes we are experienced enough to avoid getting fixated with short-term market movements or short-term sentiment. We instead conduct detailed analysis to find investments with clearly defined outcomes, as well as fund managers that have performed consistently over different market cycles and specific time periods. We have patience if a particular style of investing is out of favour, but the fundamentals are still there. Risk is diversified in portfolios by holding a range of investments and not favouring a particular investment style.
Armageddon could come one day – a massive natural disaster, an ‘Independence Day’ style visitation (hopefully they come in peace!), a pandemic or some hitherto unconsidered factor could completely change our perception of value and worth at that particular time. In the absence of this, over the long-term, markets will revert to fundamentals and holding on and waiting for sentiment to change is a more sensible strategy than selling out. Equally, buying when everyone else is selling is the simple strategy adopted by many of the world’s most successful investors.
Letting Lowes worry about the markets and money matters so you don’t have to should help you live life and prosper, rather than wasting energy worrying whether Armageddon is around the corner – everyone who thought so thus far was wrong, so don’t rush for the door when it isn’t necessary.