By: Tim Bennett
20.12.2019
20.12.2019
In Tim’s final video of the year he looks at what investors can takeaway from the last twelve months as they prepare for 2020.
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Three investing lessons from 2019
As another year ends, now is a great time to reflect on what 2019 has taught investors.
Background
A lot can happen in twelve months and 2019 was no exception. However, whilst there are many takeaways for investors, I will focus on three of the biggest ones here.
Be wary of crystal balls
The stock market bull run, that has now lasted over ten years, has been written off so many times that it is difficult to believe it has been so long and so deep (a topic I have written about elsewhere).
What’s more, a similar view can be taken on the bond market – every year it is dismissed as being ripe for a correction and each time it has confounded the bears.
What’s more, a similar view can be taken on the bond market – every year it is dismissed as being ripe for a correction and each time it has confounded the bears.
So, what should investors deduce from all of this (so far) misplaced pessimism?
The key lesson here is that, rather than spending time worrying about a correction – which is inevitable at some point in the future – get yourself organised so that you don’t have to worry about it too much. An Adviser will be happy to explain how in more detail.
Don’t be distracted by “noise”
Investors have had plenty of reasons to run for cover over the past decade and over the last 12 months. If we look back ten years, we can think back to plenty of seemingly earth-shattering events, a few examples of which appear here;
Narrow the window down to the last year and there are plenty of triggers that could have had a nervous investor erroneously “running for cash”.
And yet, despite all of these black spots, towards the end of December 2019 the FTSE 100 was climbing back up as fast as it had in 18 months and towards all-time highs, something we have seen several times in the US already in 2019. So, what are investors to make of this as they approach 2020?
Remember that the stock market is not the economy
A classic investing error is to expect what is happening “on the ground” and at the level of the economy to be mirrored soon thereafter in the stock market. And yet, often it simply isn’t.
The reasons for this are complex but can be distilled down to three big ones. Firstly, central banks have been helping to prop up asset prices via low interest rates and quantitative easing. Secondly, share prices can reflect expectations as much as underlying reality (via “multiple expansion”). And thirdly, there are important timing differences, or what I call the “dogwalker effect” – the idea that a dog and its owner will eventually end up at the same exit gate to a park but via substantially different paths.
In terms of what this tells us as investors, I would say three key things;
To find out more
Feel free to email on [email protected] or contact an Adviser to discuss any of the issues raised here in more detail.
