OUR LATEST INSIGHT:All markets crash but seldom at the same time...I hope this finds you extremely well and you have been enjoying such a lovely Autumn, Halloween on a Saturday and, for those who care about such things, the best Rugby World Cup final in history. Huge congratulations are due to the All Blacks.
If you’re feeling inspired by their unrelenting excellence, you should seriously consider reading James Kerr’s wonderful book about how they have been the most successful sports team of all time and how their philosophy can be applied as much off the pitch as on it. Ahead of my presentation at Graham Rowan’s Elite Investor Summit
this coming Saturday, I have been spending even more time than usual scanning the financial pages and ruminating about markets generally. This has been made even more interesting than usual by the discernible increase in articles and talking heads raising the red ‘crash alert’ flag for pretty much all asset classes: Turn on the radio, or television or stick your nose into pretty much any mainstream newspaper or serious magazine recently and you will find bearish articles about stock-markets, bond markets, precious metals and even (Halloween-style shock horror), London Property!
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It is extremely important to remind yourself:All markets crash but seldom at the same time (meaning you can arrange your affairs so that you have something which will continue to perform) and often not for that long (set against the decades you have as a sensible investor at least).
I was reminded of just how important patience is recently when I was lucky enough to find myself sitting next to one of London’s more high profile fund managers at a wedding. I won’t embarrass him by revealing his name but the person in question has a very impressive track record (and is a great deal nicer and more modest than the press would have you believe all these evil ‘city bankers’ and fund managers are). Said fund manager specialises in smaller companies and had just done some research with two London Business School Professors in which they had found that
the annualised return on London-listed UK smaller companies from 1955 to 2015 was no less than 16.8%. I was so astonished by this number that I asked him to send me the research and, sure enough, there it is in black and white (I will be speaking about this more at the Elite Investor Summit).
The point here is that there would have been a number of occasions throughout that time period where your investment in these companies would have been down by as much as half. If you had sold out, you would have ‘crystallised’ that substantial loss. As a patient investor, however, ignoring the noise and continuing to invest regularly, you would have made life-changing returns (Remember - these sorts of returns will turn a couple of hundred pounds saved each month into a meaningful seven-figure sum over twenty years).
Another example of this would be people in the mid-1970s who continued to invest in gold. Gold went up 2,400% (24-fold) from 1971 to 1980 but pulled back by around 50% in the mid-seventies. The people who gave up at that point missed the biggest moves that followed. I write about this in the new Afterword of How to Own the World.
Examples like these are the reason that investors like Warren Buffet’s right hand man, Charlie Munger has said: “…if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century … you deserve the mediocre result you’re going to get…” It is also why one of the world’s biggest investment companies, Fidelity, found that their best performing investors were quite often dead people (who still had open accounts that no one had ever laid claim to) and why some of the very best (and most secretive) hedge funds and ‘family offices’ in the world lock their (very wealthy) investors' money up – sometimes for as long as 7 years: To stop the natural human reaction to panic and sell out!
Of course, no-one wants to see their money cut in half but it is worth just remembering that in the marathon (not sprint) that is long term wealth building, you will very often still be best served holding your nose and continuing to invest month after month rather than giving up altogether when there is a crash. In 2009, The S&P crashed to the spooky low of 666. It is now around 2,100. If stock markets have a massive crash again from here (to 1,000 even!), the people who have been buying ever since the bottom in 2009 will almost certainly still be sufficiently above water to still be making enough of a return on their money to become wealthy, especially when you consider reinvested dividends. They will be doing immeasurably better than someone saving their money in cash with interest rates basically at zero.
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What can I do?If you would like to learn more about all of this and set yourself on the happy road to long-term financial freedom please do grab a copy of How to Own the World
and have a root around our new website.
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As ever, I wish you the very best for your investments and every other area of your life. Kind regards,
Andrew Craig, CEO and Founder
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