Client Market Update October 3 2011

Well, I suppose it had to happen sometime, didn’t it…?


This is the first time, since early 2009, that I have had a minus figure of any note to report to clients on a quarter.


That said, given the magnitude of the numbers you will no doubt have heard on the news (‘markets down 12% in quarter’), a reduction that is ‘only’ 4-5% seems OK.

It is important to note that as always, these figures have to be produced at a point on a day – it is just a snapshot in time.


With the current volatility in the markets, had I run the reports a day or two earlier or later, it could easily have shown a small positive or a larger negative.

Perhaps most important of all is to remember that whilst it is always frustrating to see a minus figure over a quarter, that is a short term piece of data, and your portfolio is managed over the long term to match your life & lifestyle / income requirements.

Looking at the major markets like the FTSE100 and S&P500 – even though as I write the FTSE sits just above the 5,000 mark on news of Greece’s deficit, they are up around 50% since the lows of 2009.

So again, whilst I appreciate seeing the funds go down is never nice, I see no long term concern at all.

In fact this very process of rebalancing now means you’ll be buying into equities when they are low and will therefore see the commensurate gains in future when markets rise again, as they always do.

I hope you read (and enjoy – or at least find of interest) the various investment updates I send out, whether the regular monthly market commentary (MMC – next edition due within a week) or the ad hoc blog posts and emails such as this one.

If you do I am sure you’ll have read my thoughts on what is going on.

As you know, what worries me, is that much of what is reported is ‘selling newspapers’ – For example, when I was in the USA just over a week ago, when markets dropped by 5 points in a day the UK headlines I read online were along the lines of ‘crash’, ‘plummet’, ‘billions wiped off values’ etc

When markets went up by 5% last week, headlines were nowhere near using the opposite language and were quite muted – ‘markets up’, ‘rebound’, ‘rally’ etc

No talk of ‘billions added overnight!’

So that is the first thing, ‘don’t believe (all) the hype’!

And much of what is written then drives markets via investor sentiment – not facts.

I have written a number of times about market movements just because of investor sentiment when an announcement is made but actually there was no new news.

This is why I, as a professional, can take these more rational views when markets move in irrational ways.

But I am not pretending it is sunny when it is raining.

The volatility in markets is real, the problems around the world are real, and I assure you the way we manage the portfolios reflects all this.

In fact this very process of rebalancing now means you’ll be buying into more equities when they are low and will therefore see the commensurate gains in future when markets rise again, as they always do.

That is the very essence of the ‘triangle’ rebalancing process we manage for you. And as I always say, it needs ‘Time’. Those clients who, by their own defined investing timelines, have less time until the money is needed (one example would be approaching encashing a tax free lump sum in a pension), have less exposure to the markets. Those with a longer time horizon (one example would be those starting to save regularly in a pension) can afford to have greater exposure to the markets (see also http://greenfinancial.blogspot.com/2011/02/pound-cost-averaging.html
 for the benefits of long term investing regularly in volatile market conditions)

What if you sold everything and went into cash now? If you sold into cash now, you would be doing the opposite of what everyone wants to do, which is “buy low, sell high”.

You’d be “buying high and selling low” – so I really can’t endorse that action.

However, if you fear that markets will continue to fall for the lifetime of your portfolio (ie until retirement and beyond) then of course you may wish to sell – but to repeat myself, that is not something I would professionally recommend in any way.

At the risk of repeating what I have written in the MMC a number of times, it is COUNTRIES that are making the headlines but it is COMPANIES that we/you invest in.

Corporate earnings are high, many companies (certainly outside the financial sector) have cash on their books and the outlook for mergers and acquisitions is positive.

The overwhelming message from leading economists at the conference I spoke at in the USA at the end of September was that markets look cheap at present (as long as you have the time to wait until they rise again)

Looking at earnings compared to equity prices (the oft mentioned p/e ratio) equities actually look cheap.

If anything, arguably now is the time to buy. And you don’t have to believe me, you can look at who many call the world’s greatest living investor, Warren Buffet, for evidence of that.

He is even buying banks!

It is always good to measure your portfolio (ie your pension and ISA etc) against what you want it to do, when you want it to do it (for example: provide a lifetime of income when you retire) rather than match it against an arbitrary index.