As we begin to come to terms with our new way of life, many clients have been asking me for my personal views and opinions on the current situation and where I think things will go from here. As such, this is a collection of personal thoughts on all sorts of issues which I hope you will find comforting and reassuring at what is clearly a difficult time for everyone.
The Current Situation
As I write, the markets are in turmoil, most people are working from home and we are panic buying and stockpiling loo rolls. I do appreciate the severity of the situation, however some of these moves (I saw a chap at Tesco a few days ago purchasing at least 200 loo rolls) are being overdone and overblown, in some cases to epic proportions. I have the same feelings about the market reaction which I will come onto in a moment.
I believe we are fast approaching the point of ‘peak panic’ (although we are not quite there yet). In the coming day or two the schools will close and I strongly suspect that we will enter a period of enforced lockdown, much like we have across Europe. Once these measures have been announced I suspect the panic and irrationality will have one last hurrah and then, slowly, gradually, we can begin to rationalise and come to terms with our ‘new normal’.
It is said that stock markets climb the stairs and take the lift down and I feel the same will be true of our feelings and reactions to this current crisis. At the moment, things feel very new and the change is unnerving. But, over time, we will get used to the new way of working for a time and gradually things will return to normal (it is just that we don’t know exactly when that will be).
The gradual return to normality will receive little media attention and we won’t feel it nearly as strongly as the painful changes we are making to everyday life now, but, slowly and surely, it will happen.
Human emotion is strong. We are not always rational creatures, especially when faced with a threat to our health and the desire to feel like we are ‘doing something’ is great. We have to remember that the people who trade billions of dollars on the global markets are human beings too and will suffer from all of the same fears as the rest of us and this will no doubt impact on their decision making (whether they realise it or not).
As as starter for 10, I am not an epidemiologist and I do not have any scientific qualifications of any kind, so my views on the issue of the virus are very much from a layman’s perspective.
The health issues caused by the virus are heart breaking and there have been some harrowing scenes playing out on the evening news. We have to remember that these are a minority of cases, however that does not make it any easier to watch. My thoughts are with anyone personally impacted by this situation.
In order to see ‘light at the end of the tunnel’, in my view, one of two things will need to happen:
A – We develop and deploy a vaccine.
B – We develop so called ‘herd immunity’.
In reality, I suspect that it will be a combination of both of these factors that sees the end to this crisis and both will probably happen sooner than we expect (disasters always feel like they will take a lifetime looking forward, but usually seem to pass more quickly in retrospect). There is news today in the papers that the progress of the vaccine is gathering pace and that it could be ready in months and not years. Early days yet, but a green shoot of hope and I certainly have my fingers crossed.
As an eternal optimist and as an entrepreneur, I have every faith that we will get through this crisis and return our lives to ‘normal’ before long. I suspect that ‘normal’ might look a little different at the end of all this, but not that different.
By now we are all aware that the markets have had a rough few weeks. To think that we were sitting at record highs barely 3 weeks ago is almost unbelievable. The speed with which markets have fallen is unprecedented and, I believe, is more to do with human emotion around the health crisis than anything fundamental.
There will no doubt be an economic impact of this crisis and there will be a hangover, just like in the financial crisis of 2008. This will be one of those watershed events that will be remembered and spoken about for years to come.
Despite the panic, I do personally believe that the sell off has been overdone (based on the facts and data we have available now). A great example of market irrationality is the Amazon share price. Arguably one of the companies who are best placed to do well in this brave new world, Amazon are in the process of hiring 100,000 new workers globally to meet never-before-seen demand. Why then is their share price down circa 12% over the past few days? Because of panic and irrationality is my theory – certainly not because of company fundamentals. I could give many more examples of companies whose share price should be rising, but is not – a tell tale sign that markets have gotten carried away with themselves.
My own view is that we are approaching the bottom (although perhaps we are not quite there yet), although I would not like to predict when this period will end.
What I do have confidence in however is that markets will recover. Markets have always recovered. They have recovered from a great depression, two world wars, numerous more localised conflicts, black Monday (the 1987 one), the dot-com bust, 9/11 and the financial crisis. Why should this be any different?
The other reason that I have confidence that markets will recover is because of cash. One of the main reasons for the markets rapid rise over the past decade or so has been the paltry rates on cash savings since the financial crisis – say about 1% on average. In this environment, for anyone who wanted a sensible return, money has had no place to go but into the equity markets.
This factor, I believe, will be even stronger in this recovery. As of a few moments ago, the Bank of England has just cut rates to 0.1% – the lowest level ever. Given the current situation, I imagine they will be close to that level for a decade or so to come. At the same time the FTSE All Share currently offers a forward looking yield of over 6% (there will be some dividend cuts no doubt, but still). Economically this difference can’t be sustained and when we all emerge from our homes at the end of this, we will want our money to work hard for us – the only place it can go will be equities.
Finally, I am buoyed by the spirit of the entrepreneurial community. I belong to several business coaching groups and the ingenuity being displayed by businesses in finding new ways of working is very impressive. I stayed at a small hotel at a pub on Tuesday and the owner was just preparing to launch a food delivery service in the village to keep his kitchen running if the pub has to close – this type of creative thinking will be happening up and down the country.
In our own business, the reaction to the use of video calls has been incredible, with some clients commenting that they actually prefer this as a communication medium given the significant cost and time savings it affords. While we will always offer face-to-face meetings (nothing will replace that), I suspect we will all continue to use video conferencing more once this crisis is over.
We have also seen a rise in new client enquiries over the past few days as people use periods of self-isolation as an opportunity to get their affairs in order and attend to financial planning tasks that may well have been put off for many years.
Other businesses are also taking similar measures to make themselves more efficient and accessible. For example our legal partners have just introduced a completely paperless instruction taking and drafting service, meaning that we can create new wills, trusts and estate planning solutions for those who need them completely over video or phone call during this time.
Is This ‘Different’?
This is perhaps the most common question people have asked me over the past few weeks. Is this situation different? Do the normal rules apply?
The answer is yes … and no.
Yes – this is different. But only in the sense that every market downturn is different to the ones before it. The 2008 financial crisis was very different from 9/11, which in turn was very different from the dot-com bust and so on.
No – this is not different in the sense that I am sure we will recover from this. It might take 6 months, it might take a few years, but if the markets can recover from everything the world has thrown at them over the past 130 odd years (including many serious pandemics) then they can certainly recover from this.
If you would like some reading to help reassure you (and keep you entertained during lockdown) I would strongly suggest Factfulness and The Righteous Mind. I guarantee you will see the world differently after reading these books.
How We Can Help
Although clients thank us most when portfolios are rising, it is at times like this where we add most value and really earn our keep. The team and I are working harder than ever before and will continue to do so to support our clients through this time. I am proud and humbled by the effort and in some cases sacrifices that the team have made in providing an outstanding service to our clients.
We are in constant contact with our investment partners at Square Mile and other financial analysts and are monitoring and managing portfolios to limit the damage and make the most of the opportunities that exist in this market (and there are always opportunities somewhere).
Our new Zoom video conferencing system is now fully operational and there is something more comforting about seeing someone’s face versus just speaking on the phone. If you would like to schedule a video call to discuss your own situation or just wish to have a friendly conversation while self-isolating, just ask Kayleigh who would be more than happy to make the arrangements.
Comfort Reading For Uncomfortable Times
Next week, we will be sending out a whole host of curated articles and content to help you see through the market and media noise and make calm and sensible decisions in what is clearly an unusual and unsettling time.
We hope that this content provides some comfort (and entertainment) in the weeks and months ahead.
If there is anything more I can do to help you – please just ask.