Radiohead famously included a song called ‘No Surprises’ on their OK Computer album. Over the past few weeks we have seen some stock market turmoil with a number of the leading financial indices falling by over 5%. Martin Vaughan considers this recent fall in the stock market in the context of a wider investment strategy, and asks whether there are really any surprises.
In recent weeks, particularly since the start of this year, most of the world’s leading stock market indices have fallen in value. While disappointing, this is actually not a surprise.
The general consensus has been that the stock markets are overvalued. This can be borne out by the falls in value - effectively delivering a partial correction.
In many ways we should just accept that this is the case and that these things happen. Indeed, any investment professional will tell an investor that the value of their investment can go down as well as up. All investments do, and it should come as no surprise.
Why this has happened right now is a much more difficult question to answer, though the drivers are often political. The stock markets don’t like uncertainty. Big businesses, like BP, HSBC, BA and Tesco - as well as smaller firms - plan their business strategy many years in advance. So if there’s a political event capable of derailing that strategy, it can have a dramatic effect on the share price. This in turn affects the stock market as a whole. Therefore, things like Brexit, or the relationship between USA and China, can affect the stock market significantly.
But this is not new. The stock market has been going up and down since it began. To put this into context, the UK’s FTSE 100 index, has fallen 8.50% since January. Yet between January 2000 and April 2003 it fell 47%, and between October 1987 and January 1988 it fell 27%.
Any investor should therefore look to invest for the medium to longer term, simply to weather the ups and downs. They should also look to diversify their investment across multiple asset sectors so all their eggs aren’t in one basket. By investing in this way for the longer term, even though the stock market has fallen over the short term, we know from experience that it will increase again eventually.
Clear CM creates portfolios that have numerous investments spread across many different asset classes and in many different markets. Even when the value of one part of the portfolio goes down, it’s often not the whole portfolio - and it should also mean that another part of the portfolio may be going up.
While it is not great news to report that the stock market has fallen, it is also not a surprise - and it is exactly what we expect the stock market to do. So, ‘no alarms and no surprises’!