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Weekly Notes

Weekly Note

The Week in Markets – 2 – 8 October

The challenge in writing a weekly note is that most subjects don’t start and finish in a seven-day period; economies and markets are fluid and continuous, with events taking weeks, months or even years to play out. Over the last couple of weeks, we have written about inflation and its effect on bond markets, of rising gas prices and of a lack of direction in equity markets and these subjects are still as relevant this week. For good measure, we can now also add to the mix a Facebook blackout and US debt ceiling concerns to the headlines.

New Chief Economist for the Bank of England (BoE), Huw Pill, warned this week that inflation in the UK may be higher and last longer than originally anticipated, in part driven by rising energy prices and a continued global supply shortage. Earlier in the year investors assigned around a 10% probability to UK interest rates rising by March 2022, this week the probability had risen to around 90%. The likelihood of two interest rate hikes by May 2022 has moved from less than 10% just four months ago to around 80% today. Whether we are witnessing a structural shift to sustained higher interest rates and inflation, or whether this will be a short-term hiking cycle (more akin to 2018) is unclear currently. As investors, we need to think carefully about portfolio construction and the mix of assets we would want to hold if the 30+ year bull market in bonds is finally over.

Facebook has evolved into so much more than just a social-media company and while a few hours break from Facebook, Whatsapp and Instagram may have been welcome by many, it was a source of lost revenue not only for the company, but for many businesses who use their platform for sales and marketing. It is estimated that it cost the technology giant around $100m in lost revenue as well as wiping off nearly $50bn of equity value at one point. The outage interrupted business, Government communications and, in some developing countries blocked access to the wider internet. It was interesting to read that due to the firm’s work from home policy many remote engineers were not able to communicate with the staff in the data centres and caused the crisis to drag on longer than it should. Some reports suggested that the outage even locked staff out of buildings and data rooms as the system linking door security to work permits failed. The domino effect both locally and globally should be a wake-up call.

On Friday we woke to the news that the US Senate voted in favour of extending the debt ceiling, allowing the nation to meet its liabilities and continue to borrow. Janet Yellen was vocal in the run-up to the vote, stressing that if the debt ceiling was not extended it would have severe implications for the US economy.

US non-farm payroll jobs data was released on Friday afternoon. The data showed 194,000 jobs had been added to the economy in September, below estimates of 500,000. Unemployment in the US fell to 4.8% and with a considerable amount of job openings coupled with elevated consumer demand we can expect unemployment to fall further over the remainder of 2021.

Further East (or West depending on which direction you are travelling and from where) China and Russia both appear to continue to be influencing a rise in gas prices. Russia is rumoured to be restricting gas supplies as part of a strategy to encourage EU countries to approve Nord Stream 2; their new Baltic Sea pipeline. Gazprom, Russia’s gas export monopoly supplies a staggering 35% of European gas needs. It’s alarming how reliant Europe has become on one nation (Russia) for its gas needs. In January, China recorded its lowest temperatures since the 1960s leading to widespread power cuts. To avoid it happening again this winter, the Xi government has ordered its state-owned energy firms to secure gas supplies for this winter “at all costs” which is fuelling the energy price crisis across the globe.

This week’s news and recent events highlight the increasing reliance we have on the Superpowers of China, Russia and the US as well as the superpowers of the technology giants; something we need to keep a watchful eye on as individuals, business owners and investment managers.

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 25 September – 1 October

Persistent or transitory inflation, that is the question. It’s actually been the question for most of the year and this week was no different, as it appeared the persistent inflation bulls had the upper hand, fighting back after the summer months were won by the transitory inflation camp.

The obvious short-term forces of supply chain bottlenecks, energy shortages and a rebound in demand from the pandemic induced lows are helping stoke inflation, but the longer-term inputs of a move away from globalisation, continued government spending and wage inflation are providing fuel for the persistent inflation believers. The higher inflation expectations have impacted markets this week. US government bond yields have risen (prices therefore fall) to levels last seen in June, while UK gilts and European government bonds have also seen their yields move higher. Equity markets have been bumpy too; stocks which are more correlated with bonds have retreated, while sectors such as energy and financials have proved more resilient.

German elections took place on Sunday, with Angela Merkel stepping aside after 16 years as Chancellor. Her party, the Christian Democratic Union, performed poorly, losing significant votes from previous elections. With no clear party winner, a coalition government is likely, yet we still do not know how that will look. Given Germany’s economic power within European markets will be watching proceedings very closely indeed. 

On domestic shores the petrol shortage has continued to rumble on, snatching the headlines from the gas crisis that we’ve also been experiencing. The energy crisis facing the UK is fast becoming a global problem, hitting the world’s second-largest economy, China. Reports of factory closures and power rationing will undoubtedly feed through to weaker economic data in the coming months while also increasing supply issues, given China’s role as the manufacturing heartbeat of the global economy. 

There was some positive news to end the week, with the UK economy growing faster than anticipated in Q2. Data on consumer savings also highlighted that we are continuing to save at elevated rates. These savings will likely be spent in the real economy as consumer confidence returns, meaning we could see further upside surprises to UK growth. Increasing consumer demand at a time when supply issues are apparent would do little to dampen the persistent inflation camp!

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets 18 – 24 September

After a fairly benign summer period, all of a sudden there feels a lot to cover in the weekly note. From gas shortages to Chinese property concerns to hawkish central banks, it’s all happened this week. Despite many of these headlines, equity markets have climbed the wall of worry in the middle of the week, quickly rebounding from the sell-off on Monday.

On domestic shores the UK gas crisis continued with further energy companies collapsing, meaning nearly two million homes have lost their supplier this year. The cost of gas for suppliers has spiked by more than 250% in 2021 and, unable to pass this increase straight through to customers, many firms have run into difficulties. While there are short-term drivers for the rise in gas prices, including unusually low wind speeds, a lack of investment in the gas industry has also caused structural problems. It’s an interesting case study and one we may witness again over the next decade with oil and commodity prices. We have been through a period of underinvestment in these sectors, for various reasons, and while the hope and target is to move away from fossil fuels, we have to question whether the infrastructure and technology are currently in place to do this. If not, we may find that our planet still relies on oil at a time when there has been little investment in the space, which is likely to lead to supply shortages and spikes in prices. For investors, this can create opportunities. 

It was a busy week for central banks, with both the UK and the US deciding to keep interest rates at current levels. While this may sound fairly dull, the language and messaging used by central banks has impacted the bond markets. Both were fairly hawkish in their statements, showing concerns around inflation, which may lead to them increasing interest rates earlier than the market has priced in. Towards the end of the week, we saw government bond yields rise (and therefore prices fall). It may be worth noting that Norway increased their interest rates by 0.25% – the first G10 nation to do so – which acts as a reminder that ultra-low interest rates may begin to normalise over time. 

Chinese equity investors have had a rough ride in 2021 as political and regulatory risk has come to the fore and dented many sectors. Despite China being the second-largest economy in the world, we have always been mindful of the weaker corporate governance and potential regulatory risk; this has held us back from having a dedicated China exposure in portfolios. Chinese property firm Evergrande appeared to miss interest payments on a portion of its bonds this week, stoking fears that a default is imminent. The company has a significant amount of debt and there are concerns that this could spill over to other sectors, such is the reach of the debt pile. This comes at a time when we have seen the Chinese government clampdown on the education, technology and healthcare sectors as China pursues a ‘common prosperity’ goal. While the fall in the Chinese stock market is of interest, it is very hard to know how deep or far this government intervention will go, and as such we are happy to allow our emerging market fund managers to use their expertise and be very selective with their allocations to China. 

The issues facing global markets this week act as a timely reminder that risks can appear quickly and often without warning. Portfolio diversification is critical to help mitigate risk and smooth returns and we will continue to focus on this. 

Andy Triggs | Head of Investments, Raymond James, Barbican

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 10 – 17 September

OK: Another tranquil week to describe. The Chinese authorities have had another pop at one of their big industries, this time, gambling companies in Macau. That caused their share prices to plummet and further dented sentiment about the wider Chinese market. In contrast, Japanese shares, perhaps benefiting from flattery by comparison, had another good week. Other than that; all quiet on the markets front.

But, much as I say not much happened, for all we know, maybe it did. Markets have a lot in common with other complex phenomena, such as earthquakes or forest fires. Much as we think they should be predictable, they constantly confound humanity’s best attempts to forecast them.
This is because earthquakes and forest fires happen far more frequently than we assume. In the case of earthquakes, they’re happening all the time. But almost all tremors are so tiny we don’t feel them, so we don’t obsess about trying to predict them.

However, although the overwhelming majority amount to nothing, any one of these tremors could trigger others, which then trigger even more, and so on until we have a major quake (almost like the first tremor has “gone viral”). As Mark Buchanan put it in his excellent book – ‘Ubiquity’; “when it starts, an earthquake doesn’t know how big it will get.” This is why they’re impossible to predict.

And so it is with market sell-offs, which share the same mathematical signature as earthquakes and forest fires, and even wars. That’s something called a ‘power law’, which roughly means that there are exponentially fewer big wars/earthquakes/market crashes than there are medium ones and exponentially fewer medium ones than there are tiddlers.

Put another way, we see market sell-offs hundreds of times every day, we just don’t care because they’re tiny. But, like earthquakes, when a sell-off starts it doesn’t know how big it will get. So China causing investors to sell Casino shares might mean they have to sell other shares too, which causes even more investors to pull out, which then ripples out to a global crash. Or it might spark a rally in Japanese shares. Or it could just peter out to nothing. We won’t know until we know.

Taken the wrong way, this could be scary: We like to think our world is predictable, even if, deep down, we know it isn’t. But markets have always been this way. That’s why we use tried and trusted safety measures like diversification. Concentrating our money in just one company, market, or asset class makes us more vulnerable to unforeseen events. But using a selection of diversified funds and asset classes as we do (you hold, for example, a modest amount of Chinese and Japanese shares), we’re confident we can survive the small, medium or large tremors, and bounce back stronger afterwards too.

For now though, all is quiet. So you can forget markets – and earthquakes – and enjoy your weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 4 – 10 September

Global equities reversed this week, ending a long winning run. When markets have dropped, but there’s no clear reason why, it’s traditional for us market reporters to put it down to “profit-taking” then break early for lunch. But on this occasion, it’s worth taking a quick tour of the regions, as differing trends are playing out.

To understand what’s happened to a global equity index, the first place to look is always the US. American equities punch well above their weight in world stock markets: while their economy makes up less than a third of the globe’s, their companies represent double that amount in a global equity index. So they usually dictate the global tone. This week the consensus is that investors are worrying about the Federal Reserve beginning to slow the pace of stimulus. It isn’t yet overly clear why they’re worrying this week more than last, but that’s the mystery of markets for you.

If investors in U.S. equities are worried about this, then holders of British and Continental European shares are even more concerned: share prices on this side of The Pond have had an altogether soggier week. Looking at the winners and losers in the fund world, “value” funds have fared worse than “growth” funds, which implies investors are becoming less convinced that broad-based economic recovery and/or inflation are what we’re headed for.
The stand-out market this week has been Japan. For most of this year, it’s seemed as if investors had simply forgotten that Japan existed; its market has flatlined while most others raced upwards. But the recent resignation of Prime Minister Suga has jolted their memory, and talk of new leaders with new cheque books helped the Tokyo index to defy the wider gloom; it has rallied by 4% in just a week. (This is why Japanese equities form a useful part of a global portfolio – it’s good to have different parts doing different things at different times, and Japan often marches to its own tune).

Finally, we hop across the sea to China, where gaming giants Tencent and Netease were called in for another telling off from Beijing officials. Having already been on the receiving end of one share-walloping lecture earlier in the summer, they were again chided to “profoundly understand the importance and urgency of preventing minors from online game addiction.” Their shares promptly tanked again, dragging other tech giants with them, and turning what had been a mildly positive week for Asia Ex-Japan shares into a negative one.

And now a market scoop: The success of these tactics duly noted, the Evan-Cook household, which is similarly blighted by gaming-hooked minors, will henceforth move to the communist governance model. Sadly, at the time of writing, the US and Japanese markets are closed, so you’ll have to wait for next week’s report to hear how hard this hits shares in Microsoft and Nintendo.

In the meantime, have a great weekend.

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 28 August – 3 September

This week markets have offered us a carbon copy of markets last week: They generally went up, with Asian equities rising the fastest as they rebound from their mid-summer trouncing. 

Tempting as it is just to reuse last week’s note, instead I’ll expand on something I mentioned in it: central bankers’ impact on investment returns. Because the big cheeses of central banking met up at Jackson Hole last Friday (well, they did a group Zoom). There was much speculation about what they’d say, and what it would do to markets. But in the end markets shrugged, suggesting they’d correctly guessed the content (or lack of it) within the US Fed Governor’s speech. Ho hum.

But out of the proceedings did come an interesting academic paper. It helps to answer two big questions you might rightly ask: 1) Why, despite the trifling matter of a global pandemic, do share prices keep rising? And 2) why, if central bankers are creating oodles of new money through “Quantitative Easing”, haven’t we seen inflation go through the roof?

If the paper is right, then it’s because most of the new money that’s being created is going to people who already have it: Central banks inject this new money into the economy by buying assets, so it stands to reason that those with fewer assets will benefit less than those with plenty.

Then we come to something I dimly remember from A-Level economics: “The Marginal Propensity to Consume” (stay with me). Basically, the more money you have, the lower your marginal propensity to consume. In other words; if you give money to richer people, they are more likely to save it, and less likely to spend it, than someone who has less money to start with.

This is why, the theory goes, we haven’t had runaway inflation in prices of everyday goods and services, which we might have assumed would follow the creation of tons of money. If, instead of buying stuff, that money is being saved, or invested into assets like shares or property, it explains why we’ve seen high inflation in the prices of those assets. In short: there’s a lot of money swimming about, and it’s all looking for somewhere to earn a decent return, pushing up prices as it goes.

So there you go. That’s why we in the investment world focus so much on what central bankers do and say. If this paper is to be believed, their past and current actions are behind rallying stock markets, as well as other assets like homes, art and fine wine. If they stay on the current tack, there’s good reason to believe this will continue. But if they change course, it’s reasonable to believe that, well, markets will change course too. 

Here endeth the note. Less of a ‘The Week in Markets’, and more of a ‘The Decade in Markets’ this time. But hopefully, with the summer holidays ending, we can get back to shorter-term gyrations, which are less brain-bending than the long-haul stuff, and easier to digest of a Friday afternoon.

Until then, have a great weekend.

Simon Evan-Cook

 (On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 21 – 27 August

It’s been a benign week for global stock markets, led higher by Asia’s partial rebound from its preceding weekus horribilis.

Given the lack of action in the immediate past, most commentators have turned instead to the immediate future. Specifically, they’re commenting on what they imagine might be said at the Jackson Hole meeting of central bankers today (Friday), and what they imagine markets might do in response. I haven’t yet seen any comment about what they imagine central bankers will do in response to the markets’ imagined reaction to their imagined meeting though. I suspect that’s because, much as it reflects what happens in reality, it sounds silly in a newspaper.

We’ll come back to that meeting, because it will matter, and it does feel like this week’s drifting markets has been a holding pattern, with investors waiting to see what’s said later today.

Not everything drifted though. Shares in UK supermarkets have had a bumper week – so much so that my mum emailed me for the inside line. Sadly, she emailed the wrong person: my speciality is picking good fund managers, who then pick the stocks for me. But I can read the FT as well as the next man, and it seems it’s due to speculation that there’s a takeover spree heading their way.

WM Morrison is already the subject of a spiralling series of bids, and this week it was Sainsbury’s turn to take centre stage, with takeover rumours causing its share price to spike by more than 15% on Monday. So, who is buying them? The answer, certainly in the case of Morrisons, is private equity.

The term “Private Equity” is bandied around a lot, but perhaps not all of us know exactly what it is. The simplest answer is what it’s not: “Public Equity”, which is shares that are listed for anyone to buy on a stock exchange. So private equity is, instead, shares in companies, or often the whole company, held off the market by individuals or, in this case, funds run on behalf of individuals.

Which brings us back to those central bankers who will be chinwagging (albeit virtually) at Jackson Hole today. Loads of money has flown into private equity funds in recent years, just as loads of money has flowed into almost every financial asset you can think of (including ones that have only just been invented, like cryptocurrencies). This coincides with central bankers creating loads of money through quantitative easing (“QE”) which they use to buy financial assets.

I use the word “coincides” with a wink, because it’s no coincidence: Their actions are pushing up asset prices everywhere. Hence the focus on their comments today – any indication that they might stop QE, or even slow it, may mean less future money to buy stuff and push up prices. Now I’m speculating on imagined future events myself – something I promised myself I wouldn’t do (at least not publicly, anyway) – which means it’s time to stop imagining and get back to real life.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week In Markets – 14 – 20 August

In markets the hardest thing to get right (to the point of being impossible) is timing. So, I’m pleased to report that fortune has smiled on me this month: my recent two-week break coincided with possibly the dullest run for markets since records began – squeezing out two interesting weekly summaries would have been a tough ask. So, if you, like me, were taking a fortnight’s break from the 24-hour financial news cycle, you can relax – you missed nothing.

The last week has been a little wobblier though. You’d be forgiven for thinking this was due to the news coming out of Afghanistan, which has been bleak. But to the best of my knowledge that hasn’t been the cause. It has, instead, been the usual to and fro on the inflation-vs-deflation tug of war, which is all that markets can think about for now.

In this case, the very mild sell-off in equities, and corresponding rise in ‘safe-haven’ assets (such as government bonds or the US dollar) was caused by suggestions from US Federal Reserve officials that they may begin to taper their asset purchases by the end of this year. I could spend the rest of this note trying to explain exactly what “tapering asset purchases” is. But you wouldn’t thank me for it, not this close to the weekend.

So, I’ll turn instead to Asia where the market turmoil caused by the Chinese government’s recent actions continues to make for more interesting reading.

Asian markets fell by more than the global average again this week, extending the starker drops I described a couple of weeks back. In essence, the Chinese government has decided it doesn’t like the concentrations of power being built up by its tech companies. So it’s nipping them, painfully, in the bud. In fact, maybe ‘bud’ is the wrong term: Having performed spectacularly well for years, the Chinese internet companies’ were in full bloom. So now their woes are having a big impact on the Asian Stock Market Index – as companies like Tencent, which has dropped 40% in the last six months, had become huge parts of the market. This week it was the announcement of measures to ban unfair competitive practices that has wiped further billions off several Chinese tech behemoths.

Such concerns are frequently mentioned when thinking about US companies too, as antitrust talk has returned to the fore of late, and their tech giants are no longer the cuddly, universally popular entities they were when we first got smartphones (ahh, simpler times). But the US government has less inclination to clip its own companies’ wings and has less power than the Chinese Communist Party to do so even if it did. So, while the “FAANGS” aren’t winning with quite the gusto of the previous ten years, they’re holding up far better than their Chinese equivalents – for now.

That’s all that mattered for markets this week. Summer is a funny time though. Usually little happens, but when it does, things can move sharply. We’ll keep watching on your behalf.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

Weekly Note

The Week in Markets – 24th – 30th July

All the drama has been in Asia this week. Japan has hogged the sporting headlines, while China has dominated the pink pages. It’s worth understanding what’s happening in Beijing, as it provides a timely reminder that markets aren’t one-way bets, and that risks come in all shapes and sizes.

The numbers first of all: The Chinese stock market is down almost 9% on the week, having been off by 14% at worst (there’s been something of a rebound over the last few days). This has exacerbated what was already a sticky run: having rallied by 18% into late February, the market then dropped by 31% to hit this week’s trough. Given the importance of China in wider Asian and emerging market indices, these too have had a very tough week, leaving them flat for the year.

Why has this happened? One word: politics. This has been brewing for a while now, but what was made very clear this week is that the Chinese Communist Party (CCP) is uncomfortable with how much control was being gained by the private sector at the expense of the state.

The specific action that sparked this week’s rout was a crackdown on private tutoring companies, wiping billions off several companies in the process. But before that the CCP had signalled a wider discomfort with private data gathering and security, with the very clear implication that data should be the property of the state, not of private companies.

There are lots of risks investors have to consider, so many that some become forgotten, overlooked or simply not learned in the first place. This event is a reminder of the twin risks of political and regulatory risk. Perhaps blinded by the incredible returns made by Chinese tech companies in recent years, some investors loaded up on these companies, and in doing so forgot that you only “own” something in China for as long as the state says you can. Which is another way of saying that, ultimately, you don’t own it, the state does.

It is also a reminder of the benefits of diversification: even our most aggressive portfolio has considerably less than 10% exposed to Asian ex-Japan equities, while our Cautious Portfolio has less than 4%. The rest is spread across different markets and asset classes, and so actually benefited from rising share prices in the UK and Europe this week, where we have higher weightings.

And, thankfully, much of our Asia ex-Japan exposure is through one of our trusted, actively-managed fund picks: Schroder ISF Asian Total Return. Its managers, Robin Parbrook and King Fuei Lee, read the Chinese mood music months ago, and heavily reduced their exposure to China. As a result, they have seen only a modest dip in their Fund’s price, while Asian indices, of which Chinese tech companies are a large part, were walloped. Given the complexities of this situation, and the sense that there’s more to come from the CCP, we’re glad these Asian equity specialists are looking after these parts of our portfolios. They’re highly conscious of risk in whatever form it comes.

Have a great weekend,

Simon Evan-Cook
(On Behalf of Raymond James Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

Weekly Note

The Week in Markets – 17 – 23 July

This week we get all philosophical, as we explore the financial world’s equivalent of “if a tree falls in a forest, and no one’s there to hear it, did it make a sound?” 

Because the week’s stock market performance numbers look fairly silent: UK equities, for example, squeaked out a return of just 0.15%. But this hides a couple of noisy days, particularly Monday, which felt like one of those “here we go again!” moments, as many major markets plunged by over 2% in a single session: A big move outside of an obvious crisis.

This had the financial world bracing itself for worse to come, with the spread of the delta variant commonly singled out as the harbinger of another prolonged collapse in share prices. Then on Tuesday everything bounced back. And it’s been quiet since. So that, it appears, is that.

So, here’s the question: If a sell-off happens, but no one has time to sell, did it actually happen?

First a quick nod to pedants’ corner: Yes – obviously somebody was around to sell something, or prices couldn’t drop. But ignore that and go with me on this one – there’s a useful principle here. Which is that successful investors know that scale matters. Specifically, in this case, timescale.

In this note, I happen to be talking about a week. If that’s the timescale by which you judge your investments, then there was nothing to see over this seven-day period: it ended as it started. But if your time horizon is a day, then you’ve been through the emotional wringer. And emotions can be dangerous when investing, particularly the extremes of fear and greed: So on Monday’s drop, as the headlines turned bleak (as they always do on a red day), you might have been tempted to sell out in fear of a further drop. But, if you had, you missed Tuesday’s bounce, and locked in a nasty loss.

Now we can take this to extremes: We could shrink our time horizon down to microseconds, which some do, trading the millions of tiny moves that happen every day (if you think this is a fanciful exercise, I’d recommend a read of Michael Lewis’ “Flash Boys”, about how “high-frequency traders” rigged the US stock market).

But for that, we’d need a ridiculously powerful computer, a house inside the stock exchange, and no scruples. More relevant, then, is to consider lengthening our timescale. How long? A year? Maybe: In 2020 global equities made 12.3%. Nice. But during that year they collapsed by 26%, at which point many panic sold. They then rallied back by an astounding 63%. Those panic sellers definitely rue paying close attention: it wasn’t a problem for those who only check in every New Year’s Day.

But is a year enough? Go longer – to a decade, or several decades, or even a lifetime – and you’ll find supernaturally calm types like Warren Buffet. He is, I’m told, worth a bob or two, so maybe there’s something to be said for stretching those time horizons out a bit?

Food for thought. But, in the meantime, have a great weekend,

Simon Evan-Cook

(On Behalf of Raymond James, Barbican)

With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. 

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