I was recently introduced by my young daughter to TIC TOC investors which was mainly a series of short self-made videos espousing wonderful get rich quick investment schemes varying from crypto currency to share tips;
Seeing these reminded me of the old adage ‘If it is too good to be true; then it IS too good to be true’ and should be avoided at all costs.
I was also drawn back to the CNN Money Fear & Greed indicator, something as Financial Planners we have to remind our newer clients of quite regularly to prevent them selling when markets fall.
The Fear & Greed indicator, produced by CNN Money starts with the basic premise that the major factors driving short term moves in share prices are the two most basic of human emotions – fear and greed.
When investors are fearful, they will tend to sell – often irrationally – while after a period of strong gains, investors can often become irrationally greedy, paying scant attention to prices, leading to potentially overextended stock market levels.
Both sit at extremes of behaviour and the purpose of the dial is, by looking at a number of different indicators, to come up with an indicator of where we sit at present.
The current level shows markets are feeling optimistic, but not necessarily excessively so. Last March, at the peak of the pandemic, the dial sat in single figures, highlighting the complete collapse of confidence that shares suffered. Since that period, however, stocks have rallied extremely sharply, with many markets hitting multi -year high levels.
Unfortunately volatility is not over. Recoveries are not straight lines meaning we will still see sharp falls and some disappointments. Dates for international travel, keep changing making the share prices of hotels and airlines hugely volatile. What we do know is that people will go on holiday at some point, and that they are quite likely to fly there and stay in hotels when they arrive. This picture is happening in a number of sectors and across the world and is creating fluctuations in the stock markets, as money pours into these recovery/value shares out of the companies that have done well over the last year.
There are definitely areas of value and companies who will recover. And it is also the case that some of the changes that we have seen over the last year are going to be more permanent trends. Will the shift to online shopping change as shops reopen or will all of the spending that had shifted online shift back to bricks and mortar retailers?
The above chart shows how online sales as a percentage of sales had already been steadily increasing over the many years – the pandemic has just, accelerated the process. These same trends were apparent, too, with time working in an office environment against time spent working from home or in business travel being supplanted by “virtual meetings”. There will, inevitably, be some switch back, but some of these changes will become permanent.
Only the future will tell you whether it is a good thing or a bad thing. What is important is to distinguish “trends’’ that will stay and identifying where there will be winners who can capitalise on new opportunities and losers who do not.
Markets will always find something to be concerned about. Vaccine rows with the EU reflect the acrimonious state of relations between Britain and the EU, China is becoming increasingly assertive and the grounded container ship in the Suez Canal shows how dependent global trade is on a few key points.
A Stock market without worry is like fish without chips. If there is nothing to worry you can be sure investors will find something. Never forget the news reports only bad news and is superfast to talk about ‘billons’ off of the stock market but rarely talks the market up.
The fact remains that investing is a long term-project and having a well-diversified asset allocated portfolio focussing on a basket of qualitative funds continues to provide excellent returns over time.
Lastly, another old adage to leave with you never forget
‘Everything changes and everything stays the same’