On the Money
Crashes? Crises? We’ve survived them all
After the EU vote there’s been a lot of talk about financial meltdown. It’s something I’ve been hearing for all the 43 years since Britain joined the European club. That was in January 1973 and by October of that year a worldwide crisis had struck without warning.
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%. Somehow we survived despite widespread pessimism.
Do you remember the then Labour government going cap in hand to the IMF in ‘76, begging to be bailed out? Yet somehow we survived.
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, we made it through the nights.
If you’re on the outlook for scary days, how about the one when the Dow Jones lost 22%? Well, that happened in ’87. We’re were doomed, was the popular cry. But we survived.
A couple of recessions more followed in the early 90s. Then just when it seemed it was safe to come out the toilet, Black Wednesday struck out of nowhere. On 16 September 1992 the pound gave up its fight inside the ERM (Exchange Rate Mechanism).
Hardly anybody saw it coming, apart from George Soros who pocketed £1 billion profit. What happened to stock markets, GDP, unemployment, and currencies is worth a look.
Sterling fell by more than 8% in days against the Deutschmark (euros were merely a twinkle in somebody’s eye back then). The FTSE fell more 5%, and interest rates were pushed up to 15% “to protect” the pound. 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 weaker currency. UK unemployment fell from around 10% to below 4%. British GDP doubled in real terms. The FTSE rose 30% in three years, excluding dividends. We survived.
Since then we’ve also survived wars, oil price volatility, recessions, the dotcom bust, millennium bugs, two stock market crashes since January 2000, deflationary pressures, and the worst world financial crisis since the 1930s.
What lessons have been learnt from 43 years of surviving all this? That no good investment decisions have ever been made from emotional knee jerks, in either direction.
One of our “goalkeeper” fund managers confirms 99.5% of his fund is protected against current volatility. And our old head at the heart of our clients’ defence, Neil Woodford said this on Black Friday: “Clearly on a day like this markets have responded negatively to the uncertainty that follows this vote, and may continue for some while. However my job is to peer through this short term uncertainty, and focus on the long term fundamentals of the economy and the businesses in which we invest.” Well said.
So do remember that through the troubles of the last 43 years, managers like Neil who source and hold quality global businesses with superb dividend growing records stick to their discipline and strategy, ignoring panic times like this. Though we know those with cash to spend right now are shovelling up bargains created when weak hands give up.
Bunker down. Sit tight. And spare a thought for the poor wee bairns at Friday’s Bo’ness Fair when it really did rain on their parade.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.
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