It’s Tuesday afternoon 28th June as I write this. Only four days since Black Friday, when the UK’s Leave campaign victory shocked world markets. If my mum had still been alive she would have panicked and run out to take in the washing. The media did much the same in their world rushing out gloom laden hysterical headlines without thinking.
While only one or two clients have phoned in with their concerns, it’s worth passing on to you what they learned. A typical nearing-retirement client’s pension fund is up over 12 months net of all costs, while over the same period the FT All Share total return is down 8.8%. Since Black Friday the FT Index is down 3.3% and as I write this his portfolio is up significantly.
I read only the other day the UK joined the Europe Club in January 1973. I didn’t remember that did you? What I do remember though is that at the same time I became an IFA. And by late October a worldwide financial crisis struck without warning on a Black Monday. By January 1975 the UK stock market index had fallen by 70%. UK Inflation was out of control. From 1975 to ’76 it reached 26% pa. Somehow we survived.
A man on steam radio this morning reminded listeners he was there. And that there was a political vacuum after the Tories lost out in 1974 taking on the miners. Labour won but didn’t have a majority, then another quick election followed when they did, only by 4 or 5 seats. He described the market fall out, rampant inflation, high interest rates, economic woes, unemployment etc. Never mentioned though it was probably the best time for decades to buy shares.
A few recessions later, marked by still high inflation and volatile interest rates playing havoc with mortgagees’ spending plans, we staggered into the 1980s. Despite predictions to the contrary, especially around 1984’s mini stock market crash, like Gladys Knight we made it through the night. Until Black Swanday came out the blue in October 1987. If you’re on the outlook for scary days how about a 22% fall in the Dow Jones Index in only one? That actually happened then. We’re doomed they cried. But we survived.
More recessions followed in the early 90s. Just when it seemed safe to come out the toilet, Black Wednesday came out of nowhere. On the 16th September 1992 the Pound gave up its struggle inside the ERM (European Rate Mechanism…who thinks these names up?). Nobody saw it coming apart from a certain George Soros who pocketed £1 billion profit. What happened next to stock markets, GDP, unemployment and currencies is worth a good look.
Sterling fell over 8% in days against the Deutschemark (Euros were merely a twinkle in somebody’s eye then). The FTSE fell over 5%. Interest rates went up to 15% overnight “to protect” the pound. (Wonder if pounding comes from pound? Just a thought). But then what happened?
Over the following seven years the Pound rose 40% against the d/mark as productivity and exports grew, boosted initially by a weak currency. UK unemployment fell from 10% to below 4%. GDP doubled in real terms. The FTSE rose 30% in 3 years, not including dividends. We survived.
Since then we’ve also survived wars, oil price volatility, recessions, the dotcom bust, millennium bugs, two stockmarket crashes since January 2000, deflationary pressures, and the worst world financial crisis since the 1930s.
What lessons have I learned from 43 years of surviving all this? That no sensible investment decisions have ever been made from emotional knee jerks, in either direction. One of our “goalkeeper” fund managers confirmed to us on Friday that 99% of his fund is protected against volatility. And our old head at the heart of your investment defence, Neil Woodford said this on “Black Friday”
“Clearly on a day like this markets responded negatively to the uncertainty that follows this vote, and may continue for some while. However, my job is to peer through short term uncertainty and focus on long term fundamentals of the economy and businesses in which we invest”. “
I took a call today from a young journalist anxious to find out what we were telling our worried clients. What different strategies we would now put in place. And what was our Scottish perspective on things. So first of all I read him a quote from Shakespeare, from Macbeth (thus a Scottish perspective) …. “Life is a tale told by an idiot, full of sound and fury. Signifying nothing.” That was written in 1605.
Ned Davis Research sent their considered views following the Brexit vote. It’s fair to say they have the same view as we do…. stick to discipline, follow outstanding businesses who have a global perspective and a culture of excellence and growing dividends. While the England football team appear unsure about their tactics, we are not. From the back of our defence to the frontline attack we consistently believe in excellence and team spirit…. Sebastian Lyon and David Jane in goal have kept clean sheets, Neil Woodford and James Harries with other fine defenders/ midfielders have delivered solid performances, and our home and overseas strikers including Terry Smith and Angus Tulloch show us the value of old heads in turbulent times.
And regarding the “plummeting” Pound, only days ago it lay around $1.40, then flew up to $1.50 on media hype, only to fall again to $1.33 now. That’s only 5%.... hardly a plummet. What’s more, on Purchasing Power Parity with the Dollar, it should have been $1.30 for the last few months. So it was actually overvalued. Finally, haven’t we been told consistently by economists what we need for growth is a cheaper currency?
Three years from now we’ll all wonder what the panic was all about. But if you are concerned do speak to us. Me? I’m helping my good lady prepare for her wee mum’s funeral. Some things are more important than worrying about what stockmarkets do day to day.
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your advisor before taking or refraining from any action.