On the Money
Market bogeymen on the hunt for red October
It’s that time of year again folks, October the favourite month of bogeymen. The month that nights start drawin’ in, clocks go back and ghouls roam wild..and all the scarier nowadays given that spoilsports in the UK Government, not content with the Brexit mess they’ve contributed generously to, have this year decided to thrust a Budget on to us before Halloween just for good measure.
And to put the tin hat on it, world stock markets are back in the news for all the wrong reasons. They’re falling. Now, interestingly enough, while it’s normal for them to fall every now and then as well as rise most of the time, it’s clearly more newsworthy to ignore the latter.
According to my calculations, the trouble all started on the 10 October when the US, in the shape of the Dow Jones and the S&P 500, fell sharply. In the case of the Dow by 831 points which was reported as “the fifth biggest fall in history”. Next day it fell another 546 points. For those still searching for your calculator app, that’s 1377 points “lost” in 48 hours. “A bloodbath” screamed Twitterattis with short memories and a rich fondness for hyperbole.
Octobers bring out the worst in pessimists, don’t they? Every year they hunt for red October and most Octobers the stock market sails by unperturbed. So what’s the problem?
Maybe it’s got something to do with the odd October when the unmentionable hits the fan. Take my years in IFA-land. Having given up trying to communicate with actuaries and annuity departments in St Andrew Square, I became an IFA in January 1973. What could go wrong? Found out soon enough. A few months later and stock markets crumbled when in October 1973 those pesky Arabs trebled the oil price overnight. Something to do with Israel. Nothing changes.
Or maybe it’s the ghost of Black Monday October 1987 when shares tumbled like the oak trees in Kent (Sevenoaks became Oneoak overnight). Investors who had shares at the time will recall that nobody saw them coming…the storm and the stock market collapse. In the interests of perspective the Dow Jones fell by over 22% in one day. And followed that with a further 8% fall a week later just when you thought it was safe to come out the bomb shelter.
And if you think that was bad how about the 35% fall over one week in October 1929? And I heard that in October 1917 one stock market fell to zero! St Petersburg Index in Russia. Jings Crivens.
But what happened on the 10th and 11th wasn’t that bad. Not even the worst two day fall this year. That record belongs to the February market tantrums you’ve probably forgotten all about. Actually our October fall doesn’t even make the top ten of stock market red days of the last 20 years. Fact.
Meanwhile, experts pontificate about where to hide your savings from the “bloodbath” and whether you should be investing lump sums or sticking “contributions” away monthly (that’s called “pound cost averaging” in case you’re wondering), So I wonder what they’d make of the story of Bad Timing Bob, the worst US stock market timer in history…..
Bob simply consistently invested at the peak of the stock market just before it crashed. So from 1972 to 2007 (just before the great recession of 2008/9) Bob invested all the cash he had at the time.
In 1972 just before the market fell almost 50% in ‘73. In 1987 when it collapsed again and lost 37%. At the end of 1999 right before the Dot Com bust, another 50% plus loss. And in 2007 just before the crash of Sept/Oct 2008. Another stonking 50 odd% loss. So you’d reckon that by now Bob is broke and destitute …and long divorced (well who would blame her?)
But no. Bob being even more unusual, by not selling when markets fall, he held on. Bob heard it said “it’s not about market timing that matters , it’s about time in the markets”. Or maybe he read what Warren Buffett said on the subject.. “nobody buys a farm on whether they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”
So, in the above example Bob invested $184,000 of his cash savings at the exact wrong times from 1972 to 2007, and by this week he was worth over $2.3 million. Bobs ex-wife can’t believe it either.
Is this October another end of the world? Who can say? Best not to follow the herd though. Better to plan so as to protect against sudden market falls by building in buffers. Let’s face it we can’t all have nerves of steel like Bob. So like even the best football teams such as Barcelona it’s wise to have goalkeepers and quality defence constantly in place.
Same goes for next week’s Budget. Every year since I left University and started funding Government excess spending requirements we’ve had at least one Budget a year. Two nowadays. And everyone has been accompanied by thousands of pages of “aw-naws” over “what loophole will be shut down this time”, and/or “what new complicated tax will be dreamt up this time?”
Every year I’ve listened to pessimists in the “aw-naw” camp, and gone with the optimists in the “look at that opportunity” minority. And it’s worked even better than Bad Timing Bob’s formula.
So if you think there’s a possibility that pensions tax relief will be reduced, if you think you have too much money wasting away in deposits still earning nada, before inflation, and you think you have big gains in high growth shares or funds and you haven’t used all your exemptions or allowances, this might not be a bad time to do something before Hammond eggs you into new tax cul-de-sacs.
Next week after the Budget I’ll do my best to point you in the direction of the opportunities. I’m sure there will be plenty written elsewhere about the “aw-naws”.
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.