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Time to pour cold water on market doomsayers

Alan SteelIf you’re a stock market investor, especially if you’re getting on a bit like me, February certainly lived up to its reputation for springing surprise extremes on us, although over my lifetime it’s February’s weather extremes that spring to mind, not the recent squalls of economic worries that brought unwelcome volatility to our favourite shares.

That’s assuming there’s actually such a thing as favourite holdings these days, judging by the statistics measuring average levels of investor patience.

As to the weather I have bitter memories of February 1963. It was an extreme freezer of a month. The snow fell thick and fast to the extent you couldn’t see where you were going. And I don’t remember anybody predicting it, although back then there were just two TV channels (in black and white), with a mere two short daily-news broadcasts that most folk ignored.

It was a world far removed from today’s obsessional 24/7 constantly revolving bad news delivered by pessimists aided and abetted by “new technologies”. Breaking News? More like Breaking Spirits. Bah.

As to February 1963 not only did we have horrendous snowstorms but it was so cold it remains the coldest February since 1895. It was so cold that brass monkeys were seen desperately searching for welders and lawyers had their hands in their own pockets for a change.

Despite expert assurances that February ‘63’s climatic severity was a sure-fire sign of winters to come in fact only two since have compared. Experts predicted an oncoming Ice Age.

This time around, if you believe the headlines and the monster that’s become social media, we’re doomed to an oncoming economic Ice Age. So “sell, sell, sell your shares now, before yet another Armageddon” appears to be the consensus view of the miseries. Really?

You’ll have noticed the US Dow Jones, an index clearly compiled (or complied by dyslexics) was widely reported as having “the biggest two day falls on record”. Well, they were if you report the number of points, which is irrelevant, but not in percentage terms ,which is what matters. A 4% fall in a ‘market may sound bad, but not when you compare it with the 22% fall in the Dow Jones in a day in October 1987. THAT WAS SCARY !

I don’t know where financial journalists studied Maths and English. “Dramatic rises in Inflation” doesn’t fit with a 0.5% increase as compared to a 26% increase forty odd years ago. And since when did a 0.25% increase in interest rates translate accurately as a “hike”?

As to “market meltdown”, “stocks routed”, and “panic” and “plunge” being used to describe recent falls, which are entirely normal … what nonsense.   In the US, over the last 90 years which includes the Wall Street Crash of 1929/30, the Dotcom bust of 2000, and the 2008 Great Financial Crisis, there have been more than 300 stock market falls of 5% or more, and 96 falls of 10% or more. That’s what normal looks like, folks.

The fact is that what was abnormal was what had happened over the previous 404 days of calm markets (an all-time record), and the longer it went without a release of pressure the more likely one was due, and the more volatile it would be.

So what should we learn from our experience over the years? And what can we expect next? Frankly, who knows for sure? But what I’d say, after 45 years in the firing line, is this… before every “crash” there’s euphoria amongst inexperienced investors. A can’t go wrong attitude. Borrowing to invest. A lack of what’s called liquidity, or cash, to put it into normal words.

With nine and a half million adults still holding Cash ISAs earning minus 3% a year after inflation, and with increasing record inflows to so-called “safe” investment funds, contrarians would say there’s still time to make hay once this cold spell gets out the way. I go along with that.

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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