Warren Buffett famously said about successful investing “Be fearful when others are greedy and greedy when others are fearful”.
The volatile start to the New Year on the markets has certainly created a bit of panic, if not fear, with a herd mentality kicking in amongst Chinese traders and the rest of the world’s markets following suit.
The 7% fall on the first day of trading in China saw the new set of circuit-breaker mechanisms, designed to halt trading when prices move too far too fast, brought straight into action – and they were in use again today, with trading suspended for the day in China after only 30 minutes. This made it China's shortest trading day on record.
Following this, global markets have followed suit, with the FTSE 100 quickly down 3%, the Dax in Germany down over 3.5% and France’s Cac down 3.17%. US stocks hit a 3 month low yesterday and are expected to fall lower after the opening bell later today. Oil prices are also lower, with Brent Crude down first thing this morning to $32.62 per barrel.
This turbulent start to 2016 may lead to volatility throughout the year, with tensions in the Middle East, China likely to continue to slow and a Presidential election in the US – plus closer to home possibly the EU referendum. It certainly is enough to make investors fearful.
So it is timely to remind investors that whilst turbulent times are uncomfortable, they also present opportunities. Back in 1974, if you had bought equities when the market seriously crashed, your investments would have tripled by the end of that decade. And if you had bought after the 1987 crash, your investments would have risen by 55% in the next 5 years. The same applied to investing after the dotcom bust and the 2009 financial crisis.
The message, as always, is that investing is a long game and that whilst investments go down as well as up, over the long term equities have generally delivered excellent returns. Because of this, reviewing your portfolio in turbulent times could make sense for some; for as Warren Buffett alluded to, there will be opportunities out there at moments like these.
For more information on the current state of the markets or for investment and financial planning advice, contact Kellands.