What You Should Do in Response to Market Volatility


13/03/2020 9:22:35 PM // Written by Private Capital

What You Should Do in Response to Market Volatility

It's been a wild few weeks in the market as investors try to gauge how the coronavirus will impact global growth and corporate profits.

When stock markets turn volatile and confusing as they have done recently, even the most patient investors may come to question the wisdom of their investment plan.  We have seen plenty of difficult markets come and go over the years and we can certainly understand if some find the current environment daunting.

One of the first things you must accept as an investor is that you’ll occasionally lose money (uncrystalised paper losses) — sometimes a lot of money — on the way to earning a decent return.  This is all part of the risk you bear in exchange for higher expected returns on your investments.  It is also important to remember that stock market corrections and sustained periods of volatility are a common occurrence.  On an average of about one year in five, the stock market experiences a ‘bear market’ closing 20% or more below its previous all-time high.  Neither Private Capital or anyone else can predict when, where or how this ‘bear market’ will bottom out.  We can only observe the historical fact that sooner or later, all bear markets bottom out and within time surpass previous highs.  As a long-term investor you should be guided by history, as opposed to the media.

Capitulation to a bear market inevitably turns out to be a big mistake from which many investors financial plans never recover. Let’s not forget, at this point you have already endured the risk of a declining stock market and selling now will only lock in a loss that given time is likely to prove closer to the bottom of this market event than you imagine.

What Have Private Capital Been Doing

As a client of Private Capital you already own a globally diversified, low-cost, investment portfolio, that typically holds over 24,000 positions, which is matched to your agreed risk profile.  Plus you do not have all assets committed to the stock market.  You have emergency cash reserves and for most of you, your investments with Private Capital have an equity weighting of somewhere between fifty to eighty five per cent.  The media quoted stock market performance, is not a guide to your own portfolio.

We are unable to insulate you from this short-term volatility, but we are able to help you to maximise the chance to meeting your long-term financial goals.  It is simply impossible for anyone to know how and when the Coronavirus pandemic will be resolved and how the stock markets will react in the meantime, but based on history, we can say with a reasonably high level of confidence that “this too will pass”.

Private Capital are discretionary investment managers and much like a duck moving gracefully across a pond, we have been busy paddling like hell underneath.  We rebalance our portfolios on a dispassionate basis, usually towards the end of January or when the equity/fixed income ratio moves by 5% or more.  Over the last few days, we have been busy building trades ready to sell a small portion of the fixed income element and buy equities.  We are literally “buying low (equity) and selling high (fixed income)”, it’s prudent portfolio management.  Indeed, to that end, if you have spare cash, we actually think this current environment is a buy-on (as opposed to a sell-off).  For every seller, there must be a buyer.

Private Capital is Here for You  

You would not be human if you didn’t experience some degree of fear at the direction of current events from time to time.  Regarding your investments, you must stay the course.  To help you do this please read our ‘Top Tips for Staying Calm in Today’s Markets’ piece, which can found here. You may also find our recent blog on Covid-19 of interest.

Please try to ignore your investments for the time being and if you would like to talk to one of the team about changes in your circumstances, your financial plans or investment portfolio, please do either pick up the phone, email or WhatsApp.  

HK Office: +852 2869 1996
UK Office: +44 1270 900 161

Email: adkinson@private-capital.com.hk, bate@private-capital.com.hk, rogerson@private-capital.com.hk or Phil in the UK on stockton@private-capital.com.hk
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