The Dow Jones Industrial Average has recently had its largest single day fall of the last six years, with this coming after one of its largest one year rises. This fall then spread to all other world markets.
For somebody who had been invested through this bull market, the fall represented a mere couple of months of previous rises. So why all the upset, and why do I feel so unsettled? Obviously, it is because I don’t know which way the markets are going to move, and I just really, really hate that uncertainty.
Is this a minor blip, or are we heading for a major correction? Who knows; market overpricing and the potential of rising inflation are worrying, but countering that, the world economy is said to be growing, so where to next?
There are those that say we are due another major correction because that is just the way of the world. I have some sympathy with that statement when I look at the graph of the FTSE100 over the last 25 years.
For a variety of reasons these corrections do occur. First there was the bursting of the dotcom bubble, then in 2008/9 it was the financial crisis, in 2011 it was the Eurozone debt crisis and in 2015 it was a panic over China`s growth. They are like rogue waves at sea, they are just going to happen. However, that is not to say there aren`t signs that suggest being cautious.
We have just experienced a minor roller, which might or might not be the precursor of a damaging investment tsunami. So in my book, it was a straight-forward decision and I have put on my life-jacket and sold off some of my funds into cash.
If nothing adverse materialises then I have lost a gain and will buy back again later, but if the worse happens and the markets do crash then I have suffered less of a loss. That is my preferred position. I am not in the lifeboat yet, but I have one hand on the gunwale.
Please remember that I am not a financial shaman, but just an ordinary DIY investor with access to fund performance numbers. I am in the same position as yourselves, and like you I am bombarded by commentary about Cape Numbers (performance index) and VIX numbers (volatility) and articles written by readers of chicken bones all telling me that I should be able to tell what is going to happen next. Well I cannot, and nor can they!
The only thing that I do know is that in the past when there have been falls, the recovery time varies from a few weeks to over twelve months, and that is fact. You can take precautions and reduce your exposure to the markets or you stay where you are and see what happens. You pays your money and takes your choice, quite literally!
At times like this I am reminded of the Jesse Livermore quotation…
“No person can accurately predict what will happen in the future, and you should not listen to people who tell you that they can.”