The market declines
2016 was kicked off with a slump across the world’s financial markets. This has added somewhat of a pinch of sourness to the projections of many market forecasters.
A long term investor could be forgiven for scratching his/her head in wonder of all this – What’s all the commotion about? The declines in prices so far have been relatively minor. If anything, we’ve seen what could be regarded as an expensive stock market become only slightly less expensive. Attractive investments are still hard to come by!
Of course, some market forecasters are not considering just a slump; they foresee a catastrophe on the horizon. Now they may be right, however, history has shown time and time again that we humans are exceedingly inept at forecasting crashes. Financial markets are by definition ‘complex systems’ whereby conditions that produced a crash at one time interval may not necessarily produce the same result at another.
However, perhaps acknowledgement of this fact by the forecasters would produce a less engaging title for research pieces; ‘There might be a crash coming but we can’t be sure’.
We can most certainly observe the frequency of such crashes as a reminder to discipline ourselves against being over-leveraged and hence susceptible to the downside of a crisis, but unfortunately, little else.
So before anyone rushes for the gates, it’s probably worth putting the markets recent moves into context. Being an investor in the 20th century and into the 21st century has been an extremely rewarding experience. Despite two world wars, the Depression, the Great Recession and many other calamities, humanity has managed to create an enormous amount of wealth that a lucky portion of the world’s populace has been able to enjoy the fruits of by buying equities.
Regardless of whether the slump stops here or blows out to crash-like proportions – owning a portfolio of businesses that have ample room for earnings growth with management who are shareholder friendly provides considerable portfolio appreciation over the long term.
It’s also a remedy for shorter-term market anxieties…
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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