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15th April 2020

Market Update AL V2b 300x210Over the past seven weeks, our lives have become more uncertain than in most of our living memories. We have been bombarded with news flow and data points which, largely, do little more than increase the uncertainty that we are all experiencing.

In our day-to-day lives, now, for the first time, we face questions of when the epidemic will subside, when can we go back to our workplaces, when our children will be able to go back to school and what the future holds in terms of job security and economic impact.

Despite the dearth of opinions from experts, ranging from politicians and epidemiologists to economists and market participants, the answers to these questions are inherently unknowable. As investors it serves us well to remember that much of what we see and read in the news amount to nothing more than estimates and conjecture. We simply do not know when the epidemic will be manageable, what the economic future looks like or where financial markets will head in the immediate future.

In times of extreme uncertainty such as these, a disciplined investor needs to identify and weigh up what is known and what is unknowable. The future path of the epidemic and markets are unknowable. Whether we have seen the bottom in equity markets can only be known after the fact. So, what do we know? At the risk of over-simplification, we know three things:

  1. The epidemic will subside and become manageable at some point.
  2. Many financial assets, particularly equities, are at a lower price than they were before the global spread of Covid-19.
  3. Markets recover their value over time.

This brings us to the questions commonly asked during times of market stress; should I sell or is now the time to buy? The answers to these questions are nuanced and need to be balanced against your own personal appetite for risk and currently invested portfolio. Let’s look at these in turn:

Should I sell? – if you are a long-term investor then financial academia states that the best thing to do is nothing. Selling now will likely crystallise losses thus destroying capital. It also leaves the question of when to buy back into the markets. To reiterate, we cannot know whether portfolio will rise or fall in value in the immediate future. However, we do know that typically, investors are rewarded for weathering the storm and staying invested.

Is now the time to buy? – to quote the respected investor and founder of Oaktree Capital Management Howard Marks, “now is a time to buy”. What’s the difference you may be asking? The time to buy is a definitive statement which implies knowing that we have seen the bottom in equity markets. This is unknowable and calling the bottom in markets is a fool’s game. However, we do know, with absolute certainty that many financial assets are priced less than they were seven weeks ago. Therefore, we can say with confidence that now is a time to buy.

Some professionals in the financial industry have a habit of over-complicating matters. We advocate the following:

  • Keep it simple
  • Act on what you know, not opinions from experts
  • Stick to the long-term plan

For portfolios that we manage, this means not being tempted to tinker with asset allocations or constituents. Our processes have served our clients well over the past five years and we expect them to continue to do so in the longer-term, no matter how uncertain the current environment may be.

Until next time, I hope all your families and friends stay safe and well.

Steven Lloyd, Investment Director

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Important Information

Past performance is not a guide to future performance and may not be repeated.  Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back any of the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rate changes may cause the value of overseas investments to rise or fall.

This article was issued by Capital Professional Limited, trading as Ascot Lloyd, Ground Floor Reading Bridge House, George Street, Reading, England, RG1 8LS.  Capital Professional Limited is registered in England and Wales (number 07584487) and is authorised and regulated by the Financial Conduct Authority (FRN: 578614).  This communication is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document. Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Ascot Lloyd as a result of using different assumptions and criteria.