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.

 

 

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 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. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.