Last week was one of the worst weeks we have seen on the stock exchange in recent times. Daily fluctuations came in the order of 7-12%, something you have to go back many years to find a match for. Now it is the case that the stock market on repeated occasions in history has had large fluctuations, but last week we also saw historically large fluctuations in other markets such as oil, currency, credit spreads and interest rates. Also remember that we also had an oil price war on top of it all.
Having said that, we would like to mention that we are so far very pleased that our portfolios have performed well through this so far. In addition to the currency playing on a team with global portfolios, we have previously made some moves that have dampened the fall a good deal.
There is no doubt that this whole pandemic has reached a scale and severity that was difficult to predict just a few days ago. As of today, there is still no one who can say whether today's measures work, whether they work as we hope, or whether this can become longer, deeper and worse. Thus, it is very difficult to say anything sensible about timing and when the stock market finds its bottom. We can be there already for everything we know.
What I personally mean in all modesty to have learned during my career is:
I cannot time peaks and troughs in the stock market.
The individual's portfolio should be of such a nature that one should be able to withstand the market fluctuations that are coming. Now there will never be any guarantee that the fluctuations for a given portfolio will stay within given parameters. But based on historical figures, the various portfolios should under normal conditions move within the parameters indicated on our website.
By spreading the investments globally, and in addition to several types of funds, we believe that we have reduced all risk other than market risk as far as possible.
This means that we are left with market risk. We can not remove it, BUT it will hopefully be manageable based on the portfolio chosen.
Although it is difficult to see it from the headlines when it is at its worst, the world tends to cope with even the worst crises, which in turn leads to the market returning
The world will survive, companies will survive, and companies will continue to generate income and value creation. Sometimes it only takes some time before it is reflected in stock prices again.
While in the financial crisis we discovered something called counterparty risk, I thought I would point out what applies to investments through Noon Invest:
Our customers do not risk us, as all funds are handled by our custodian bank.
Our customers do not have a risk at our custodian bank, as the funds are invested in funds and cannot be touched by the bank.
Our customers do not have a risk on the Fund Manager as the funds we pick own the underlying. That is, you ultimately own the underlying, and the fund company can not touch your funds even if the fund company should get into trouble.
INoon Invest's investment philosophy is to reduce all the risk we can, without compromising the long-term return. In practice, this means that through portfolio construction, fund selection, choice of custodian bank, etc., we seek to minimize all elements of risk that do not generate returns. What we are then ultimately left with is what we call market risk.
According to Warren Buffet (known as the world's best investor), it can often be a good exercise to compare the investment portfolio with a farm or with real estate. The latest statistics I saw on real estate prices in Stavanger showed that the housing market has so far fallen just over 20% from the top. Are there many in Stavanger who walk around and are worried about that reason? Are there many who walk around wondering if they should sell the house to get out of the market? I do not know of anyone. Why? Probably for 2 main reasons: Most people view their home as a lifelong investment. It is therefore of little importance how house prices fluctuate from year to year. The second reason is that most people are not even aware that the value of their home has fallen by 20%. Why not? Because the home is not listed on any stock exchange. There is no news program, website or stock market commentator that throws new prices on the home in your face every two seconds. Therefore, most people are happily unaware of short-term fluctuations in house prices.
As long as we own fund units, we own small pieces of companies around the world. These companies produce, food, drink, clothing, medical equipment, trains, electricity, etc, etc… .. It is the value creation of these companies that generates income, and which in turn ensures that we as owners get dividends and returns. BUT, in order to get this return, we must be able to be long-term and withstand the capital markets fluctuating.
If we are to finally look at some of the positive, then it is i.a. that both newly developed vaccines and other medicines that are hoped to work against Korona are now being tested. Central banks and governments around the world have initiated measures, support packages and reduced interest rates of an order of magnitude we have never seen before in history. These economic measures have no immediate effect on anything to do with the pandemic, but it is suitable for "jump-starting" economic activity as soon as the health service begins to gain control of the spread of the disease. Last but not least, in recent days we have seen a somewhat more nuanced stock market. While we saw that absolutely everything fell in the first and worst days, there are now a good number of companies that hold or rise in price while others have continued to decline. This should indicate that the worst panic in the market has subsided, and that smart investors are again willing to buy good companies.
For thoughts, considerations or questions, we are more than happy to hear from you. We can be reached by email, chat or phone. In the meantime, we wish you and yours good health, good luck with a (temporary) new everyday life, and not least that your investment strategy gives the desired result on the other side.
With best regards