INFORMING YOU - MAY 2013
In speaking to clients I have noticed a growing number suggest that as the stockmarket has risen so fast this year that it must be ready to fall soon. This fear seems to be made worse by the fact that the FTSE100 index is getting closer to its all-time high level which some journalists would have you believe is a bad thing. Now I do not profess to have any better idea as to what will happen in the short term than anyone else and it is possible we will see a drop from where we are at present in the next few months. However, there is also a chance that we may not and the market will continue to rise from where it is at present.
This is what happens in Bull markets. It is so long since we experienced one that we have to retrain our minds not to automatically expect the worst, although this is easier said than done.
It reminds me of a recent flight I experienced from Edinburgh to Southampton. I am fortunate that I have no fear of flying and don't mind when the plane hits turbulence. About twenty minutes before we were due to land the plane hit an air pocket and if I had not had my seatbelt on my head would have hit the overhead cabin. Not a very pleasant experience, made worse by the fact it was pitch black outside, but one I have had before. About ten seconds later we hit another pocket but this time one of the lady passengers a few rows behind me shouted out "we're going to die" and started screaming hysterically. I do not know if any of you reading this have been in a similar situation but suffice to say it did not generate a feeling of calm among the passengers. The gentleman next to her did well not to slap her.
It was a few minutes before the pilot came on the intercom to reassure us that we had flown through a thunderstorm that had popped up unexpectedly and it would be a bit bumpy but we would be landing in ten minutes. Once we heard these soothing words we all stopped hyperventilating and the plane landed as planned. Now you may be asking what on earth has this to do with investment?
It occurred to me that it is only because I have been on countless other flights, all of which landed as planned, that I was not initially worried by the first "bump". However, when the wailing banshee behind me started up I did start wondering if she may have a point. She was the passenger equivalent of Robert Peston, (now that's someone I would like to slap) planting fear into otherwise rational minds. Now of course I know that planes can crash, but I know that statistically the chances of being in one are pretty slim and there has not been a significant one in Britain for years even though there are thousands of flights every day in all weathers. However, if I had not flown much before, or my recent flights had all been traumatic no doubt I would have been the one screaming.
Unfortunately our recent investment experiences have mainly been of the traumatic type, so when markets start rising dramatically we fully expect that it can't last and mentally put ourselves in the brace position ready for the expected fall. However, what if we have entered a new Bull market? Will we see a dramatic fall or will it be onwards and upwards from here? There have been five long term Bear markets in the last 150 years, with their average length being just over 11 years. It is clear now that we entered a Bear market in 2000, so it is possible that we have seen the worst and that we are entering a Bull market phase. Time will tell.
I had a number of clients scoff at me when I warned against investing in buy to let residential property in the mid 2000's as "didn't I know that property always goes up?" Well apart from a select few areas, Aberdeen and Central London spring to mind, the last five years have burst that myth. As we repeatedly say the key to making money in the long term is to do the opposite to the crowd and as long as the doubters remain out there the stockmarket is likely to remain very good value for the long term. Couple this with patience and balance and you have the perfect combination to provide long term security.
Oh, and earplugs to block out the screamers and Pestons of this world might make the journey less stressful too.
For and on behalf of Alan Steel Asset Management