Time to be greedy whilst others are fearful?
As the Coronavirus has spread rapidly across the globe, global stock markets have been plummeting in equally dramatic fashion, as fear and uncertainty concerning likely short and longer-term impacts resulting from the virus are considered by scientists and economists alike.
In times such as most clients are asking one or both of the following questions:
Should I be taking any action with respect to my portfolio?
Is now a good time to invest?
The first question is obviously much more client specific and the reality is that if you have made an investment under the guidance of a professional then the only thing you should need now are a few words of reassurance! Taking a proactive approach and planning in anticipation of what could happen is always preferable to a reactive approach when often it is too late and the damage is already done. Making rash decisions when markets have already plunged often proves very costly as it typically means crystallising losses. If you are planning on taking retirement and/or making significant withdrawals in the near future and hadn’t planned in advance by de-risking part of your portfolio, then you would be advised to seek professional advice before taking any decisive action.
The correct answer to the second question will of course still be very much client specific and dependent on overall circumstances, risk profile and investment objectives. However, we can also answer more easily in a generic sense. Global equity market valuations are now (at the time of writing) much lower than they were a month ago and so many people are now wondering if a major opportunity has presented itself?
My personal opinion is that I do think it represents a fantastic investment opportunity for long-term investors, as given time, global stock markets will no doubt eventually recover from this setback. However, key to the suitability and profitability of any investment is the time horizon and for anyone looking for short-term opportunities or a ‘get rich quick’ investment would be playing a dangerous game.
The Coronavirus situation is most likely to get worse before it gets better and should the overriding feelings of fear and uncertainty continue to dominate, then panic and irrational behaviour is likely to ensue within financial markets.
The first reason I believe now could be a good time to invest is simply that valuations are far lower than they have been for a considerable amount of time. If we use the FTSE100 index as an example: The index has fallen from around 7,500 points to just 5,000 points (at the time of writing; 17.03.20) in a matter of weeks. That’s a fall of over 30%. On a basic level this means that shares are trading at lower (and very attractive) valuations – and paying considerably higher dividends per share.
During January Sales, people are often tempted to purchase items they perhaps don’t really want or need just because they are cheap! With investing, ironically, when prices get cheaper most people are overcome with fear and instead are running for the hills! But would you rather pay full price for a product or receive a 30% + discount?
“Be greedy when others are fearful”, Warren Buffet.
Another reason it might be considered a good time to invest is that there is a very high level of fear in the air right now. Last week the FTSE100 has its worst day since 1987; proof that many investors are in panic mode. The VIX Index, which measures market volatility, and is also referred to as the ‘fear index’ in financial circles, gives further objective evidence to support this. At the time of writing the VIX has just jumped to its highest ever recorded reading of 82.69! This surpassed the previous high of 80.86 in November 2008.
In the past, being bold enough to invest during periods like this has generally been extremely rewarding in the long run. For this reason, now might be an appropriate time to repeat one of Warren Buffet’s favourite mantras: “Be fearful when others are greedy and greedy when others are fearful”.
A cautious approach remains sensible
It is important to realise that that shares could still get cheaper from here. If the Coronavirus situation worsen before it gets better, then more falls could be set to come. However, trying to predict the bottom is also a difficult game best avoided. Our advice would be to consider drip-feeding into the market over a period of time. That way if prices fall further, you will still be able to take advantage of the lower prices on offer.
In the long run stocks and shares are likely to recover just as they have always done from economic shocks in the past. Those who are willing to invest now, while fear and uncertainty is high, are likely to be rewarded over future years. Just make sure you are happy to take the long-term view.
If you need some advice regarding existing or new investment opportunities in these uncertain times we find ourselves in, please contact us to arrange a free initial consultation. This can also be done by phone or video call; you can also use this form to arrange a callback at a convenient time.