The start of a new year is a time for reflection as well as looking forward. As we consider our aspirations for the months ahead, we should also take stock of the past twelve months. Few would have predicted the political outcomes that occurred in 2016 and there is little doubt that we are beginning 2017 with much economic uncertainty. However, there is every reason to remain positive. While markets tend to fluctuate during times of change, these ups and downs are nothing new and neither are the naysayers’ headlines.
Those who follow the pronouncements and predictions of investment houses might remember a particularly startling statement from RBS last January. The year got off to a bumpy start and rather than recognising this as market gyrations, they issued a client note prophesying a ‘cataclysmic year,’ which pretty much screamed at investors to sell everything. They believed that they had read the signs and were foreseeing a global deflationary crisis, warning that major stock markets could fall by a fifth and that oil would plummet to $16 a barrel. They stopped just short of adding a plague of locusts, a blight on crops and a flood of biblical proportion, in their doom-laden predictions.
At the time, we issued a counter statement urging clients to sit tight and keep a sound perspective. This proved to be the best course of action as, of course, the reality was nowhere near as grim as the picture RBS’s statement painted. In terms of the market, while it’s natural to feel a little spooked, to panic and sell out of equities is an unreasonable overreaction to the markets’ normal workings. A binary approach to investing (“sell everything!”) is nonsensical and, for long-term investors, entirely inappropriate.
Remember that any decision to get out of equities also requires another decision to get back in. If markets crash, the chances are that you will be too paralysed with fear to get back in and before you know it, the market will be up and you will have missed it. Markets tend to move with magnitude and rapidity. Your best bet is to trust in a robust, diversified portfolio and simply stay invested.
In respect of the experts’ predictions and RBS’ hysterical reaction, I always like to keep a link to the ‘Gurudex’ handy. It tracks and demonstrates just how accurate the gurus’ predictions really are, allowing you to ‘compare, contrast, and discover how their stock predictions unfold’. As the site shows, the results from the experts come in at roughly a 50% success rate, odds no better than those of tossing a coin. Chief Executive of Capital Asset Management, Alan Smith (someone whose view I always respect), said recently on looking at this website that these numbers prove the hypothesis that the “blindfolded monkey could do better by throwing darts.”
If ever there was one, 2016 was a year for taking the long view. At Quadrant, we always seek to offer a measured perspective in the face of market fluctuations. A look back at some of our blog posts of the past year demonstrates this. In March, we discussed the ordinariness of market falls, where we advised against fixating on the daily ebb and flow of the market, in favour of keeping positive about results over the longer term. Our coverage of the EU referendum was also more measured (and proved to be more accurate) than some of the coverage surrounding the result. We recommended ignoring the short-term noise and focusing on the things that we can control, such as the structure of investment portfolios, reassuring clients that robust, well-diversified portfolios are built to weather all investment seasons. After the global shock and trepidation of Donald Trump’s US election win, it was tempting to turn inward, with some commentators reacting as if the world’s markets had never coped with the election of a controversial leader before. We placed the Trump victory in the broader context of the last 80 years, which has seen countless examples of far greater geopolitical upheaval, from which the markets had always recovered.
As 2016 has ended and we look forward to the New Year, my mantra is to keep a measured perspective and remain positive. Investing is a long-term endeavour that requires patience, discipline, fortitude and time. With this approach and a well-structured portfolio, you should achieve your ultimate goals.
I would like to take this opportunity to wish all of you a very happy, healthy and prosperous new year.
This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.