There is a fantastic stock market saying which says “markets go up via the stairs but come down via the lift”. Global markets are well and truly taking the lift at the moment!
You will already be aware that after some fantastic increases in share markets during 2019, stock markets have seen significant pull backs in the last few weeks. The core issue driving this behaviour is the spread of the Corona Virus and the concern that stock markets have about it’s impact on consumer and business confidence. This in turn will impact global economies and their performance.
There is no doubt, this is a time of significant uncertainty for markets and if there is one thing global share markets hate, it is uncertainty. You always need to remember, a stock market is simply a bunch of people trying to predict the future performance of economies and companies. They are susceptible to all the same human foibles as all of us. Fear (think toilet paper), greed, exuberance and anxiety. Traders and market players have these same emotions as you and me. At this moment fear is dominating.
It is not unusual during these times to see some interesting market behaviours – whipsaws and dead cat bounces (no offence to the cat lovers out there – myself included) are common. Whipsaws are where markets experience big days and big down days in quick succession. It is not unusual for stock markets to be down 5%+ one day then up 5%+ the next. Dead cat bounces are where there are several days where the market is up strongly then it turns around and starts to fall again. All these types of market behaviour make it difficult to see the true trend and are part of the process of the stock market trying to figure out what is going on.
From my perspective, it appears for now, the general trend is down until the market figures out exactly what the Corona Virus and the resulting impact on consumer and business confidence will mean for economies (apart from a shortage of toilet paper!!).
What can you do? Hold tight.
There is nothing to panic about, markets will sort themselves out but in the meantime we are going to see some pretty wicked market behaviour. What is most important during times of uncertainty is that you stick to your fundamentals of investing:
- Have a diversified portfolio of many types of assets – cash, fixed interest, property and shares (both Australian and International). A mix of defensive assets and growth assets protects you when market conditions change.
- Make sure you have enough investment time frame to ride out any pull-backs in markets. Stock markets fundamentally go up more than they go down, which is what makes them a great investment over the long term. The ability to ride out down turns without panicking is the essential characteristic of a great investor and is what produces superior investment returns over the long term.
If you have concerns, please give me a shout to chat through it. This is not my first rodeo. As all of you know, I spent the first 18 years of my career working on global stock markets and on the Australian market. In my career, I have been through the Asia crisis,the tech boom and bust and of course the Global Financial Crisis (GFC) and many, many market corrections in between. This will be ok, it is just going to be a rough ride for a while.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. It does not represent and is not intended to be personal advice. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. We strongly suggest that you seek professional financial advice before acting.