Fasten your seatbelts….

This week I read with interest about a clinical trial that took place in Chile to see if Sildenafil could help the recovery of patients suffering from Covid.  As usual in trials such as this the patients were split, with half getting the drug and the other a placebo.  I have no medical training but in this case I am pretty sure that those not getting the placebo will have got a bit of a shock as Sildenafil is better known as its brand name - Viagra.

I mention this as there is not much else that would bring a smile to your face just now.

We are only weeks into 2022 and already we have seen more turbulence in the stock markets than we saw at any time last year.  As always at times like this the talking heads come on the TV spouting all of the reasons why this is happening – Ukraine, inflation, global indebtedness, supply chain problems, etc.  I could go on but there is no point.

The truth is when we see a sell off as we are just now the trigger is often unknown.  The last turbulence was unusual as there was an obvious reason, when Covid shut the global economy in March 2020.  This time none of the reasons being touted have come out of the blue as they have been known about for months.

Therefore there is no point trying to work out the cause.  Markets have periods such as this all of the time.  In fact there have been 29 times since the end of the Second World War that we have experienced a fall of 10% or more and 82 times that markets have fallen by 5% or more.  Since March 2020 it has been full steam ahead when it comes to share prices so a period such as this was probably overdue.

Is it a time to worry?  Well I very much doubt it.  In the past I have likened periods such as this to being on a long haul flight when turbulence suddenly occurs.  Experienced flyers find it an inconvenience when the turbulence is bad the cabin crew may have to stop serving food and drinks.  However, novice, or nervous, flyers sit with fists clenched waiting for the oxygen masks to drop down.  I am sure that in some cases if they could get out with a parachute a number of passengers would do so such is their fear.

However, it is extremely rare that a plane fails to reach its destination.  In fact the odds of a commercial airliner crashing are 1 in 16,000,000.  Given this, it is surely irrational to expect the worst when turbulence happens?  It may be, but we are human, not machines, and even though the logical part of the mind can try and state the obvious the emotional part knows that crashes can occur as we have all seen them on the telly.  The difference is although a crash gets reported we don’t read about the 176,000 flights that take off and land safely every day to counter this.

It is no different when it comes to markets.  Experienced investors typically shrug when a period such as this occurs as although they can see a drop in their ‘wealth’ they know it is not permanent and although they don’t know how quickly it will recover they are confident it will. 

A nervous investor who decides to come out of the market when they experience falls is just like a passenger that bails out of an aircraft when turbulence occurs.  They may feel relieved to be out but this will soon be replaced by wondering how do they get where they want to go now?  It also means they are even more scared to invest than they were before.  It is therefore little wonder that the average investor only achieves the equivalent of 35% of the growth they would have achieved by sticking in the market through thick and thin.

Now I am not saying that we will see a rebound quickly.  Far from it, as some of the companies that have been affected the most were ridiculously overvalued and it is not before time that they get a more sensible valuation.  However, in sell-offs such as this there is often indiscriminate selling which results in the good falling as well as the bad which gives opportunities for managers. A January sale if you want.

So my advice is don’t worry, sit back and relax, which is no doubt the same advice they gave the Sildenafil recipients in the clinical trial….