Perspective

How to navigate a stock market crash: webinar


Early this year, Duncan Lamont and his wife opened JISAs for their two young children - just before the stock market was sent into its fastest-ever downturn by Covid-19.   

As Head of Research and Analytics at Schroders, Duncan spends his days looking at stock market data. He knows that "the risk of loss is the price of  entry to the market." Even so, he found the experience "emotionally battering."  

The importance of remaining invested

In the webinar, Duncan presents historical data showing that switching into cash after previous 25% falls in the market "would have been the worst thing to do financially - in every single case." 

He also shows that long-term stock market investment offers a much better chance of beating inflation than cash and discusses the outlook for dividends. 

Stuart Podmore, Investor Propositions Director, points out that the unprecedented speed of this year's downturn may actually have been a blessing in disguise. "Markets moved so fast that many investors were simply unable to act, which worked in their favour."

Recognising our biases

The Covid-19 crisis has been a useful reminder of some of the behavioural biases that investors can suffer from. 

Stuart thinks that "optimism bias" is one reason why so few investors saw the crisis coming, even though the virus was quickly spreading in China: "We convinced ourselves that it would impact other people and not us."

By contrast, investors being hard on themselves today may be suffering from hindsight bias: "We assume that we could have known in the past what we know now. That isn't always possible."   

Market outlook

CIO Caspar Rock noted that while there are signs of economic recovery, consumer spending data suggests that people remain cautious. This could indicate that "pent-up demand has been fulfilled" and we now face a more gradual recovery.   

Caspar thinks that "equity and government bond valuations are elevated" but suggests that "pockets of value remain."

Caspar also noted that conditions are not yet in place for the UK stock market to outperform. Given the FTSE 100's significant weighting to financials and natural resources, he thinks this would require a steeper yield curve and higher commodity prices.

 

 

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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