Watch out, the doom-mongers are on the march again. Newspapers and website are suddenly groaning witharticles warning that global stock markets are heading for a crash and we should all run for cover.
Black on black
It happens every September and October when teenage City scribblers calendar prompts remind them that Black Mondays, Wednesdays and Fridays have a distinct autumnal bias. US-based analystBill Bonner is far from alone in warning of a great stock market crash, one that could wipe $30trn of global stocks in a matter of days.
Right now, the triggerseems to be rising bond yields. Ten-year US Treasuries recently hit a dizzying 1.76%, the highest figure since, wait for it 27 May 2016. Help! Its a similarly catastrophic tale in the UK, where 10-year bondyields have just hit a vertiginous 1.27%. Aargh! Dont look down, because thats the highest level since Brexit, according to one breathless report. Thats right, 23 June, just over five months ago.
Walls of worry
You might want to panic about a bond market crash but given these pathetic movements, I have better things to do. I could, for example, shredmy nerves worrying about a meltdown in the Chinese credit and property markets, or its shadow banking system. In fact, I seem to have spent the last five years fretting over justthat, to little avail, becauseI cant do a singlething to stopit from happening. And guess what? It still hasnt happened. And nobody can say with any certainty when it will.
This kind of nonsense has enjoyeda fresh lease of life in the wake of the financial crisis. Harrowed investors feared a repeatand to be fairwould have got one, if central bankers hadnt soothed markets withcheap credit and easy money. In these circumstances sticking your portfolio under the mattress is tempting but has only got one guaranteed result: you will lose money.
Bear necessities
The first problem with selling everything is that youllget anear zero returnon cash. The second is that stock markets are ornery things and will instantly embark on a record-breakingbull run to mock your presumption. The third is that you wont generate any dividends while youre out of the market. The fourth is that youll rack up countlesstrading charges. The fifth is that you then have to decide when to buy back into the market, and will almost certainlyget the timing of that wrong as well. The sixth is need I go on?
Im not saying that stock markets are NOTgoing to crash, because I dont know. Nobody knows. But history shows that when they do crash, they recover pretty quickly. The biggest losers are those who sell at the bottom, crystallise their losses, then buy back into the market far too late.
So ignore the doom-mongers.Anybody who listened to them in recent years haslost an awful lot of money.If youre investing for at least five or 10 years, as you should be, all you can do is keep calm, and take advantage of anymarket correction to pick up your favourite stocks at bargain prices. It will save you an awful lot of fuss, and make you a lotwealthier in the longer run.
The doom-mongers say Brexit is a disaster for the UK, but it has been great news for the FTSE 100. Still, it’s early daysand if Britain does slide into recession the turbulence will return with a vengeance.
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