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What has changed and what has not

What has changed and what has not post image

There’s nothing like a bear market to bring out the doomsters and hindsight heroes. Throw in a global pandemic, and it seems half the population is walking around with a sandwich board proclaiming the end of the world is nigh.

Actually, that does a disservice to the bloke on the High Street reading Revelations aloud.

At least your standard apocalyptic visionary stays in their lane. Many who claim stocks are toxic or that FIRE is finished were bull market cheerleaders a few short months ago. Some who argue airlines will be forever mothballed were warning ever more flying would cook the planet when this year began.

Don’t get me wrong. The pandemic is a threat to life and to share prices. The consequent economic shutdown is even worse for markets – and it’s not good for our long-term health, either – although with the data we’ve got you can see why Governments felt they had no choice but to try to curb the virus’s spread.

Time will tell. History must remember we were all groping in the dark.

The same is true of share prices.

It is easy to see why markets tanked at speed given we’ve driven the economy into the buffers. Massive monetary and fiscal support will not stop disruption or prevent profits turning to losses like the slumping A-Level grades of a nerd who discovers the dubious joys of a spliff while their school is shutdown.

But the pandemic will not last forever.

Holding back the years

Remember share prices reflect the best estimate of the value of a firm’s future earnings into perpetuity – discounted for uncertainty the further out you look.

Risks to the downside abound today. That ramps up the uncertainty discount.

At the same time we can be pretty sure that cash we thought would hit company bank accounts in March, April, and May will be much depleted.

Some firms will go bust. You can’t earn future returns if you’re bankrupt!

But for all we don’t know about it, we do know this coronavirus looks like a fairly typical upper respiratory tract infection that will run its course. Maybe we’ll get a vaccine, maybe it’ll burn itself out, or maybe it’ll become endemic and most of us will eventually get some resistance.

That’s hardly the end of the world.

In a couple of year’s time – maybe sooner – we’ll still be recovering from the economic impact, but we’re unlikely to still be glued to the virus statistics.

So what’s really changed – and what is just a reminder of what was always true?

Markets fluctuate

There’s nothing new about a bear market. You can see that crashes happen quite often if you stand back and take a wider view.

But shares still deliver good returns over the long-term.

The recent crash was extraordinarily speedy, but even that’s not novel.

As David Gardner, the co-founder of The Motley Fool, puts it:

“Stocks go down much faster than they go up, but they go up much more than they go down.”

Your mate in the office is not George Soros

There are always people who claim they sold out entirely three months ago because it was ‘obvious’ prices were too high, or that this or that would happen, or because they had a funny feeling.

I know because people message to tell me how sad they are not to have done the same.

I happen to believe investing edge exists. But it’s vanishingly rare, and it’s never manifested in huge market timing bets that repeatedly pay off.

The fact your nimble friend is not calling you from their private island is a big clue!

Independent financial advisors are not market timing geniuses

A worried friend forwarded an email from their financial advisor. It was sent at what was (to-date) the height of this sell-off in mid-March, and it strongly urged him to sell half of his equities and wait to reinvest when “things were clearer”.

This isn’t necessarily awful advice, depending on the client. That it was blanket guidance was the first red flag. Worse was the IFA claiming that normally they could read the runes of falling markets and get out before major damage – but this one had been too speedy.

It all smacked of self-preservation to me. Your IFA should have set you up with a sensible balanced portfolio, ideally passive, ahead of times like this. Because they happen!

If for some reason you both believe they’re great market timers, the evidence should already be apparent. They’re almost certainly not, and if you hear this kind of thing you might consider getting a new advisor.

Active investing is still a zero sum game

A golden oldie, we’re hearing this crash is a chance for active funds to shine. But the mathematics of investing shows it is impossible for active funds on average to beat the market through stock picking, regardless of whether share prices are up or down.

The average active pound invested will deliver market returns minus higher costs. Active funds’ only advantage over passives – as a group – is actives tend to hold cash to meet investor redemptions. This cash can cushion falls in a bear market. The same cash balance will have held them back in the prior bull market.

Individual funds and managers can do far better than passives of course, whether in rallies or bear markets.

But most will fail to consistently beat the indices, and the snag is always finding the winners in advance. Nothing has changed.

Passive funds have been on a ‘rollercoaster’

I’ve heard several fund management insiders conceding passive funds had a great ten years, but claiming the downside was being on a ‘rollercoaster’.

Firstly, active funds are, with passives, the market. They’re on the same ride.

Second, active investing is a zero sum game so there are no gains to be had for the typical investing pound, just higher costs – rollercoaster or log flume.

Finally most of the last decade was pretty placid in the markets – more like an escalator. Some active managers even bemoaned this as driven by ‘passive mania’ and ‘the Fed propping up the markets’. They blamed it for hurting their returns!

You’re not hearing advice from most fund managers. You’re hearing marketing.

It’s never the time to go all-in on anything

Some now say the crash has proven we’re headed for a depression, and it’s time to go all-in on government bonds.

Some say even government bonds are too risky due to high prices and ballooning government debt. Go all cash!

A few say it’s time to go all-in on equities, because this isn’t the end of the world, shares are cheap, and cash and bonds will deliver lousy returns.

Most of us should never go all-in on anything. The future is uncertain, and a good portfolio reflects that. Sure, have an asset allocation that accounts for your age, your time horizon, your earnings and liabilities – and tilts towards your gut feel if you must.

But don’t bet everything on anything. You could be wrong.

High-quality government bonds bolster your portfolio

For nearly a decade we heard high-quality government bonds were in a bubble that was about to burst. In recent years this turned into the widespread claim that bonds were ‘riskier’ than equities.

This is and was always nonsense. Shares just fell 30%+ in a few short weeks. Bonds held up, as we’d hope they would.

Over the long-term bond returns will probably be lousy. You own some bonds to cushion your portfolio when crashes happen and to sleep at night, not to get rich.

Equities will deliver superior returns in the long run

Don’t mistake that last point for me having any great enthusiasm for government bonds as an asset class right now.

I’m not excited about my house insurance or my smoke alarm, either. That’s not why you have them.

Stock markets will almost certainly deliver far higher long-term returns than government bonds from here. Even long-term bonds are now priced to deliver seemingly derisory returns – barely one per cent per annum in the longest-dated UK issues.

It’s one thing to expect a depression. It’s another to think it will last for 50 years.

Buying shares is hard in a market like today’s, but if you’re a long-term investor you’ll almost certainly be rewarded.

A week or so ago I pointed out that the panic had already been extreme, and it was best now to stick to your plan.

It’s rarely a good time to panic, but too late is never the moment.

Cash is always king

The dash for cash that saw almost everything sell-off in the first weeks of the crisis revived the motto that ‘cash is king’.

Well, cash is always king. It’s predictable like no other asset class. You can buy things with it. It feels good to have a fat wodge.

If I could achieve my aims with cash then I wouldn’t invest in anything else.

Sadly, I can’t. Even the richest person has to guard against inflation, which eats away the real value of a bank account balance like whispered court intrigue whittles away the power of a prince.

Ordinary inflation means 99% of us can’t even consider going all-in on cash, assuming we want to retire some day. The risk of hyperinflation means nobody can.

Despite this, cash is king. Never forget it.

Markets lurch about when they fluctuate

As I said, markets fluctuate. Sometimes they do so wildly, as recently. Because it’s 2020, many blame this on algorithmic trading – particularly those active managers who are forever casting around for a scapegoat.

You can read lots of articles explaining how robot traders have shunted about this or that asset class – let alone individual shares. I don’t doubt they’re a factor.

But markets have always become unmoored in times of panic. These big moves are nothing fundamentally new.

Besides, the programs were written or trained by humans. We’re the same as we were in the 1920s, when we also boomed and bust.

Market falls enable market gains

Stock price falls are what set up your future gains. Without volatility, the returns from shares would be much lower because everyone would own them and bid away future profits.

Lower prices improve expected returns. All those markets everyone fretted were too expensive look a lot cheaper now. For example, Vanguard says the expected return from US shares over the next decade has improved by more than 50%, from 4.4% to 6.8% a year:

(Click to enlarge)

If you’re an active investor who successfully picks stocks, it’s even truer. You make your best buys in bear markets, but you don’t know it at the time.

There is no magic money tree

Plenty of leftwing columnists have asked how the Chancellor has suddenly found hundreds of billions of pounds to support the economy, when there was no money available for their pet projects in the past.

Governments can always create money to pay for spending by issuing debt. But there’s always a range of consequences, from (potentially) higher rates and (often) a weaker currency to (likely) higher inflation or (perhaps) the misallocation of capital and (consequently) lower productivity.

The reason this is less risky right now is because at the same time we’re ‘creating money out of thin air’, the economic shock is effectively ‘destroying money out of thin air’.

The aim is for these to roughly net out.

Do nothing and we risk deflation, or perhaps even a depression. Do something and we’ll hopefully get to worry about inflation sooner than we otherwise would.

Some day we’ll need to deal with these massive borrowings, whether through taxes or by shafting the holders of government debt by inflating away its value. A combination seems most likely. Our economy will be stronger than if we’d done nothing, however, making dealing with the debt more feasible.

Economies need to grow

On the flipside, we shouldn’t think throwing the economic switch into power-saving mode is a trivial undertaking. We will see a monumental short-term hit to growth. The big question is how long the downturn will last, and how easily we’ll be able to pull out of it.

Economic growth isn’t just a boon for billionaires and Davos attendees. Lower growth means fewer goods and services produced for us all to enjoy, plunging tax revenues, and ultimately less money to spend on great things like education, carbon capture, and mammograms.

We are paying to save lives now at the cost of future prosperity, and even some future lives. It will be decades before we have any idea how this equation balances out.

We probably do not face a Great Depression

This is an opt-in recession. Economic growth was recovering before the virus hit. There were not huge structural imbalances in the economy as we went into global lockdown.

This is important. It implies there’s still the hope – though probably not the expectation – of a ‘V-shaped’ recovery when we exit these measures.

Who knows what will happen, but I don’t expect a depression. I believe if things look that dire, then neither the public nor governments will stomach it.

Before that we’d likely try a different tack, such as more aggressive/supportive isolating of the vulnerable and the misunderstood ‘herd immunity’ approach for the rest of us. By then we should have bought time to ramp up breathing equipment for the ill, protective clothing for medical workers, and testing for all of us.

Things can always get worse

I’m not blasé. I can imagine a wide range of dire developments, from repeated and virulent future waves of infection to China going back into lockdown to mass-deprivation in India to political upheavals. You could argue we have all the ingredients for a full-blown disaster.

Heck, maybe another entirely different virus is set to emerge from some swampy hinterland to play tag team with COVID-19 – there’s nothing in the rules that says because we have one we can’t get another.

The pandemic proved this can happen. We’re just more alert to it right now.

Things can also get better

The lockdown could work out better than expected. Spring sunshine could reduce infection rates. We could devise a brilliant treatment that turns infection into an annoyance for even the vulnerable. We might yet discover half of us have already had COVID-19. Eventually there’ll be a vaccine.

Maybe there’ll be an innovation dividend from the crisis. During wartime, hard-pressed societies can achieve in a few months what normally takes years.

Perhaps the miserable trend towards nationalism will be reversed as we’ve been reminded we’re truly all in it together.

FIRE is not finished

I’ve heard people opine the Financial Independence movement is over because the market has fallen 30%.

This is ridiculous on almost every level.

As I’ve said, market drops are not fun but they are normal. Young seekers of financial independence should be pleased at least that shares are cheaper. Good asset allocation for the rest of us takes into account a bit of chop. Those SWR models included periods of big market falls – they just look less scary seen in the past!

I doubt people who saved money and learned to live within their means will regret it as we head into a recession. The FIRE movement was ahead of the game.

We will eat out and go on holiday again

At the end of the day it’s overwhelmingly likely that very little will change from the COVID-19 pandemic – at least if we dodge a second Great Depression.

We will still go to offices. We will still use Tinder. We will still get on planes.

Some pundits have reminded us that people resumed flying after the September 11 attacks – despite worries to the contrary – so we shouldn’t assume airlines are permanently impaired.

This is true, but the recency bias went much deeper than that.

I remember one worthy writer explaining that Hollywood blockbusters were done for, because nobody would want to sit through a reminder of what had unfolded in real-life.

A few lunatics predicted the end of comedy. How could we laugh after such horror?

In reality within a few years Hollywood was making disaster movies about September 11 and everyone flew everywhere.

Time passes.

There will be consequences at the margin when we get through this. I’m sure people will Zoom a bit more, fly a bit less, and working from home will be less frowned upon.

But millions of us have been Skype-ing and working from home for years. If everyone wanted to do it before now they could have. Many people can’t wait to get to back to the office.

We may save a little more money if we can. We will be taxed more. Governments should be better prepared for the next pandemic.

But otherwise life will go on almost exactly as it did in the past.

Invest accordingly.

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{ 82 comments… add one }
  • 51 Naeclue April 1, 2020, 7:45 pm

    @Neverland, your comments are very true and it is good to keep remembering what happened in previous crises. At this point in the banking crisis I have to admit that things felt far worse than they do now, from an investment perspective. In a years time we can be reasonably confident that C-19 will be gone and life will be back to normal. Those that survive can all take holidays again and buy what they want when they want. So it would seem reasonable to assume a more rapid bounce back this time round. The markets are currently signalling this to be the case, with lower falls than before.

    I hope this turns out to be true. Yet, whenever we are in a crisis, there is always a nagging doubt that it really will be different this time…

  • 52 TimePasses April 1, 2020, 7:53 pm

    @Passive Investor – April 1, 2020, 4:57 am
    You said;
    “If you ‘wait for the Covid-19 to disappear’ what do you think will have happened to markets in the meantime?”

    I do not have a crystal ball but IMO, the markets would fall further.

    You also said;
    ” I think you need to have a quick think about your risk tolerance (from the way you write understandably low at 64), decide how much further loss you can tolerate ………… remember that even at 64 you should probably invest to a 20 year time horizon and then get back into the market without delay”

    My risk tolerance has been tested, yet again. In the past, I have experienced downturns since the 80’s but this time, and aging to 64, I have learnt some lessons! Getting back into the market will be slow and steady, but only after the current CV19 pandemic is over which will be some time and there is a chance that it may get me cause being a type 1 diabetic since 1999, my immune system has been severely compromised and I am at risk! However, I do not lose any sleep over that.

    @xxd09 – April 1, 2020, 9:55 am
    You said;
    “Obviously you did not have an acceptable written down Investment Plan”

    As I write, a plan is being implemented and your portfolio split of 30/65/5 is one that I am likely to adopt. A mixture of a Vanguard Lifestrategy 20/80 fund (core), an iShares Physical Gold ETF (a hedge?) plus a min. 5% cash reserve may be one I will pursue.

    You also said;
    “You will be in this situation again before you die!”

    Well, I hope not but I aim to be better prepared if another situation arises again, I am only planning for a 20 year retirement period till death arrives . With regard to spending, I am quite frugal and with the state pension that kicks-in in June 2022, the mortgage already paid off, no dependant kids (apart from a recent grand daughter o/seas) and adding the wife’s state pension, I think we should be OK.

    @The Rhino
    You said;
    “when you say VGLS 20/80 do you mean 20% equities?
    Yes the Vanguard Lifestrategy fund I sold was 20% equities & 80% securities (government/corporate bonds etc). On 19/02, I sold this for £166.72 – today they are £158.01 so they have so far gone down approx. 5.22%

    You also said;
    “………monthly drip-feed the rest back in to an asset allocation that fits better with your newly acquired experience of your risk tolerance”
    “………drip-feeding should be complete, i.e. all available cash re-invested, over a period of say, 6 to 12 months. I would prob say that would be easier to deal with psychologically than piling back in a lump-sum given current volatility and the consideration that in many ways this pandemic is still early days”

    That’s exactly what I am going to do – the drip feed will only commence after the CV19 pandemic is over and oil prices have recovered which are the two main issues at present that are causing affecting markets. In this time of non-activity as a passive investor, I am also now looking into setting up another two SIPPs (one with Vanguard) as I am now greatly concerned about the large amount of my cash which is well over double the min. £85k FSCS secured amount that is currently left sitting in a SIPP and ISA with my current provider (doing nothing …..). The problem at Vanguard is that they do not yet have a draw-down facility in the UK and I was told today that in the current market turmoil, this is unlikely to be in place this year.

    Many thanks for all the responses received and GLA

  • 53 xxd09 April 1, 2020, 8:07 pm

    “Buy to the sound of the cannons and sell to the sound of the trumpets”- Nathan Rothschild

  • 54 Sparschwein April 1, 2020, 10:26 pm

    Great article.

    I second Passive Investor’s comment here that we should use the correct scientific name for this virus – SARS-CoV-2.

    It matters because the name is a subtle reminder how similar it is to the original SARS virus, and indeed how predictable such a pandemic has been. A white swan and not a black one, in Talebs words.

    In 2012 the German government did a detailed risk analysis of a “modified SARS” pandemic (publicly available, google “Deutscher Bundestag Drucksache 17/12051”). It reads eerily familiar down to the details of what’s happening now, except that the death rate is thankfully lower than in the 2012 scenario that assumed 10% based on the original SARS.

  • 55 Naeclue April 2, 2020, 12:26 am

    Just checked my assumption that the market has not fallen as much as it did in the previous financial crisis. Peak to trough in 2008 saw the MSCI World Index drop by about 35% in pound terms. So far we have only seen a fall of about 25%, although intra-day it has probably gone lower. A 35% fall would see the iShares ETF SWDA trading at about 3250p. That is another is 17% down on the current closing price of 3892p.

  • 56 Tom April 2, 2020, 8:43 am

    Hi Investor!
    Just a heads up from a doctor here – this isn’t ‘a fairly typical upper respiratory tract infection’ at all, unfortunately. It’s very much a /lower/ respiratory tract infection (i.e. the lungs) and it’s important to make the distinction. No other respiratory tract virus I am aware of has this high a death rate. This is serious business!

  • 57 The Investor April 2, 2020, 8:59 am

    @Tom — Thanks for your comment. As a layperson it’s hard to parse the conflicting accounts of the severity of this virus, especially given the inconsistent testing / statistics. Just before writing this post I’d been reading an interview with a Cambridge virologist which is where I got that phrase from I believe.

    Hang about… *searches history*

    The scientist (interview below) uses the phrase “upper respiratory tract” twice, though looking at it again not sure if she’s actually talking about an earlier stage of the infection. Also she’s not a doctor haha.

    Anyway, I’m happy to be corrected — thanks!


  • 58 The Investor April 2, 2020, 9:03 am

    In 2012 the German government did a detailed risk analysis of a “modified SARS” pandemic (publicly available, google “Deutscher Bundestag Drucksache 17/12051”). It reads eerily familiar down

    @Sparschwein — It’s worse than that. 🙁 A friend forwarded me a couple of scientific research papers from 5-10 years ago detailing the risk of new coronaviruses emerging from ‘reservoirs’ in live animals, and specifically talked about those Chinese animal markets as a risk. I believe the phrase “time bomb” was used. So on some level we’d had a warning this would happen, although I guess that’s always the way with every crisis and it’s easy to underestimate how many such time bombs never explode?

  • 59 Jon April 2, 2020, 9:44 am

    China is going to get a lot of stick for this, and perhaps rightly.
    They’ve also just officially approved bear bile and goat horn as the treatment of choice for Covid…

  • 60 Vanguardfan April 2, 2020, 10:30 am

    @jonny why do you lump sum at the end of the tax year and not the beginning? (I fill ISAs and pensions at the start of the tax year, thus benefiting from longer in the tax shelter).

    I am buying back, in weekly tranches, the stuff I sold for CGT realisation. I am sure there will be a short term hit due to bad luck in timing, but I hope that in 5 years time it will seem insignificant.

  • 61 Jonny April 2, 2020, 10:41 am


    It’s not that I “lump sum at the end of the tax year” so to speak. I have some fixed rate savings due to mature very soon, so was going to ‘borrow’ from one of my other savings accounts to get it in this tax year – in case I’m luck enough to be in a position to max my allowance next tax year (unlikely, but a nice problem to have!)

    I’m currently leaning towards putting it into the investment account as cash, and investing it (into VG LS 60/40) monthly over the next 6 months (reviewing how I feel each month just before doing so*).

    * Though if the market continues to tank, I may feel worse each month, putting me off investing even more, when I should be feeling better about getting it even cheaper. It’s all so counter intuitive!

  • 62 old_eyes April 2, 2020, 11:05 am

    I have listened to Monevator and I hope learned something from it.

    Just did my monthly ‘where do we stand’ check. Down 10% on the month. What am I going to do about it? Nothing.

    Reasons – a) much more important health and safeguarding issues to worry about, b) unitised value of investments is still 20% above this time 5 years ago – comfortably ahead of CPI inflation for the same period, c) I would have no idea which way to jump anyway.

    Stay safe all.

  • 63 Factor April 2, 2020, 11:37 am

    @ Neverland #49 “….. companies passing their dividends …..”

    Very early days, and only a couple of cases, but the dividends due on 1/4/20 from two of the ITs in my portfolio were both paid on time and in full.

  • 64 Seeking Fire April 2, 2020, 12:07 pm

    Thanks for the article. A few thoughts:

    One thing that is different from any bear market I’ve seen (3 before this one). Is the extent but more specifically the speed to which dividends have been cancelled. I am expecting >50% drop and possibly more. This has somewhat damaged the narrative that dividends are more resilient than capital values. Investment trusts will be no protection here given they will no doubt pay dividends out of reserves but that will come at the cost of greater leverage or selling positions so the net position is not different

    I’m of course part of the crew that believes stocks go up but there can be very long periods when they don’t. The FTSE 100 a great point in question – >20 years now! There have been 40 year periods when bonds outperform stocks. I doubt that will happen from here but who knows

    – (apart from the dividend cuts) this has been a shallow bear market and I agree the lack of decline is somewhat puzzling. My best answer is that bond yields are so low / money printing is just pushing up asset prices. Money has to flow somewhere. Even if once this is over dividends recover to say 50% of where they were as corporates de-lever well that’s a lot better than you can get from bond yields. I’m still investing on a monthly basis from here

    – On bonds though, whilst the two decade trade (which I completely missed) has been benefitting from lower rates, which must surely be nearer the end than the beginning, bonds could still generate some pretty nice returns. rates can go more negative, cash can be penalised. the high convexity in long duration bonds means you can make (and lose!) a lot of money if rates go either way a little. I believe western governments will continue to print and lower rates where they can

    On Fire, this has implications, mostly psychological. If you are FIRED and get through this you are mentally probably well set. Indeed, if you’ve based it on the Trinity Study well there have been >60% drops in the modelling period so you have nothing to worry about right? For others thinking about it, you need to think ok can I manage with the volatility of a >75% portfolio of equities. If not your SWR needs to come right down, or you retire later, or save more or spend less. Investing in dividend stocks is now been show to be no panacea. Personally I think the future SWR is well below 4% given interest rates but what do I know

    I continue to like the idea of having (a) sterling (b) physical gold coins (c) $ TIPS as a decent cash reserve (5 years is right for me) and then some long duration bonds (recognising these can be v v volatile)

    Ermine, I can see why you are looking at ASL. Just to say I think there are a few pretty sub standard companies in there, I’ve worked with them in my career in financial services. They look classic value traps to me. But hey I’m terrible at picking stocks.

    – Time passes / passive investor. Personally I think if you are 64 your investment horizon to model is 40 years (not 20). If you are married (m & f) and both in good health and live in an average part of the country for longevity (not Glasgow) then there is a 1:10 chance of one of you living to 100. It something like a 1:4 chance of one of you living to 90. The fact you are reading this blog probably means you will live longer than the average. If you are single, male, overweight and smoke like a chimney then by all means go nuts and push up the spending rates

    Off direct personal finance topics but related

    I feel this will accelerate the transfer of power from west to east. I’ve seen one IB forecasting -13% GDP growth for 2020 in UK & Eurozone in a worst case scenario. China 0%. The hegemony of the West is over and our children will have to get used to it. US will be down but definitely not out. Europe down and out. State spending goes up, wealth taxes up, living standards stagnate

    Main downside risk here is the possible geo-political fallout between US and China in some shape or form. I’m not saying there are any parallels between 9:11 but I can see neo-con republicans drawing some when there are a few hundred thousand dead americans, which is a worry.

    I’ve also felt there is a strong chance the next generation will be debating whether democracy is necessarily the best form of government. We have all been indoctrinated in this for decades. But those countries where government is strongest are coping with the crisis better. The largest economy will soon be non democratic. I’m still for democracy but I can see the q being asked.

    the fact that China is not getting a lot of stick from countries (apart from the US) demonstrates they are comfortably the second most powerful country in the world. That’s life. I cannot see Europe doing anything about it. Although we should (diplomatically of course) – personally I think we have been nuts in selling assets to (sorry attracting investment from) the chinese when we can issue debt at negative real interest rates. The west is going to realise in the coming decades the mistake it has made. It’s not that they are Chinese (to be clear) – it’s the fact that the form of govt and outlook on life is totally different to ours and the west has mis-understood this.

    I do worry about the outlook for the UK. We are locked in psychological turmoil between remnants of the glorious past and the challenging future – unable to make the sweeping structural changes needed to generate wealth in the future. US in the same position but coming from a much stronger base

    – the weather looks like it’s going be nice this weekend – enjoy a barbecue if you can everyone!

  • 65 Vanguardfan April 2, 2020, 12:39 pm

    Oops forgot to tick notify of comments…

  • 66 MrOptimistic April 2, 2020, 2:35 pm

    @Seeking Fire

    If you are married (m & f) and both in good health and live in an average part of the country for longevity (not Glasgow) then there is a 1:10 chance of one of you living to 100. It something like a 1:4 chance of one of you living to 90

    The Glasgow reference made me chuckle ( it is fair comment though). On a couple’s collective longevity, I calculated that a 65 and 60 year old m&f had a 50% chance one or both being alive on the males 90th birthday so thought your 1:4 seemed a bit low ( not quite the same scenario). Present circumstances excepted of course.
    The issue I have in staring into the glowing embers is timescales. The reverberating consequences of governments throwing their planes around the sky will persist much much longer than the little RNA package doing the rounds. A medical crisis may become a fiscal and monetary marathon.

  • 67 W April 2, 2020, 5:57 pm

    @ Seeking Fire
    Re the Chinese “it’s the fact that the form of govt and outlook on life is totally different to ours and the west has mis-understood this.”

    Very true. Unlike the West it’s said that when the Chinese make a decision they always consider both the short-term and long-term long-term consequence.

    So they ask themselves, what will be the result over the next 100 years. And then they also consider the long-term.

  • 68 Neverland April 2, 2020, 9:55 pm

    I’m just ROFL at this talk about the infallibility of the Chinese communist party

    The virus got to where it is due to the deep flaws in the Chinese government

  • 69 China commentary April 2, 2020, 10:46 pm


    Got to agree here. I think the Chinese state is fundamentally fragile in the way that all top-down states are. The USSR looked strong until it didn’t.

    Like all strongmen, President Xi primarily does a good job of looking strong. The reality is plenty of internal rivalries in the CPC, which may not survive his departure (assuming he doesn’t fall suddenly from grace for some other reason). The cult of personality is exactly what even quite recent Chinese governments have tried to get away from. They have failed in this case (“Xi Jinping Thought” in the constitution. lol!)

  • 70 Penelope April 3, 2020, 6:50 am

    Yes, it is so nice to see all these comments.

    People often say its impossible to predict the stockmarket next week. Seems a bit defeatist to me. But here we have people that helpfully predict what geo-politics is going to look like in 50 years time. How lovely!

  • 71 Marco April 3, 2020, 10:06 am

    Jonny. It is good that you have realised your risk tolerance is much lower than you thought but you should still probably lump sum.

    Just choose something like VLS 60:40

    It pains me to advise such low allocations because I always run at close to 100% equities, but have a good DB pension which I can draw from in 15 years

  • 72 Quincel April 3, 2020, 10:31 am

    I am 30 years old, own my house outright, and have an apparently very secure job. Am I being crazy to consider taking out a £50k mortgage to drip feed into the markets over the next 12-24 months, or is that a very smart long term move?

  • 73 Neverland April 3, 2020, 11:18 am


    I disagree. This is a liquidity crisis in the real world in Europe and the US. 2008/2009 was a solvency crisis in the banking system

    The easiest way to deal with a liquidity crisis is not to pay money out. Dividends are one of the easiest cash outflows to cut.

    Evidence will be in soon enough.

  • 74 xxd09 April 3, 2020, 12:35 pm

    Why convert your good position into a £100000 debt?
    You should have written Investment Plan
    An Asset Allocation you can live with
    Then live frugally and save as much money from your job as you can and invest it now in a good fund -a Global Equities Index Fund for instance
    Having said if you are a gambler-go for it -opportunities like this only come rarely -no tears if it comes unstuck and the recession lasts for some years!

  • 75 Berkshire Pat April 3, 2020, 12:58 pm

    “Perhaps the miserable trend towards nationalism will be reversed as we’ve been reminded we’re truly all in it together”
    Not too sure about this – I think there’s a lot of anger that a *single public health/food hygiene failure* in a Chinese city has had such a huge effect on the whole world. The downside of Globalisation? Highly mobile populations moving between ‘megacities’ are ideal disease vectors. Many (including me) are also concerned about long fragile supply chains, and would welcome a more self-sufficient approach. Hopefully international cooperation and sharing of ideas will continue, and expand. We just need to question mass movements of people around the globe. Do people REALLY need to fly around the world ‘on business’ ? What about the Instagram generation ticking off ‘experiences’ and getting photos from exotic locations as a form of one-upmanship?

  • 76 Quincel April 3, 2020, 2:41 pm


    For the same reason anyone leverages money when investing, it might improve my returns. Let’s say I have £1k surplus to invest each month. If I put that into the markets for 4 years and 2 months it will buy certain funds which will rise or fall a certain amount. If instead I take out a £50k mortgage with £1k monthly payments it will take about 4 years and 7 months to close, with £55k cost in total, but I could triple my monthly investment for 17 months instead.

    Put another way, given prices now are lower and may fall more but a recovery at some point will come is £5k a good price for bringing forward the investments from month 18-50? It may be a very good price if the market bottoms after 12 months and recovers over another 12, in that case I’ll regret not spending £5k when, in 3 years time, I’m spending £1k a month on shares at higher prices than I had to instead of repaying a mortgage I invested at much lower prices.

    I’m very uncertain about whether to do it, but it would essentially be investing on margin. Let’s say my house is worth £200k, that would be investing 25% margin because I think the next year or two might be more lucrative than the two or three years after.

  • 77 ZXSpectrum48k April 3, 2020, 2:44 pm

    I don’t know much about equities, but I struggle to view them as “on sale” as a few comments here imply. The S&P total return index (SPXT) at 5150 is still 10% above the Dec 2018 low (4665). So we haven’t even taken back the return of 2019. The peak was 6900 in mid Feb, the 2008 low 1100. I suppose I feel I want at least to see 4665 or really 4000 (50% retracement) before feeling the equities are “on sale”. I suppose I’m looking to see a unwind in both level and time. It’s sort of odd: since 2009, the SPXT has still delivered over 14%/annum; yet since 2000, a paltry 4.5%. Long-duration bonds have been a much easier ride.

    I’m 3.8% down from my personal peak NAV in Feb but still marginally up on the year. I still have about 25% of my fund portfolio to report March returns. I expect them to be up but it’s always a bit of a lottery on these type of events. I haven’t marked down my physical residential property, direct loan or private equity holdings since fairly hard to quantify any of those this early. Have to think though that these don’t take a decent hit. I usually consider taking a stop-loss on a 5% high to low drawdown, so only got 1% or so to play with. I’m 30% in cash and zero interest to add risk here until have more visibility. Preference to preserve capital.

  • 78 Quincel April 3, 2020, 3:33 pm


    I broadly agree, shares probably have much further to fall (albeit who knows, the market is a weird beast). My view is simply that they are likely to be better value either now or during the next year or so than normal. But you’re not wrong.

  • 79 Grislybear April 3, 2020, 3:47 pm

    @Quincel. Sounds good to me, the best bit is the actual debt of 50k , in my opinion we are going to get higher inflation and inflation works wonders on debt and you can make out like a bandit if the debt is fixed. Best of luck.

  • 80 Bastiat April 4, 2020, 8:39 am

    Who said it? Some CCP mouthpiece? Did they consider the long term impact when they decided to silence whistleblowers, shutdown labs and destroy samples then deny human to human transmission for months and now publish absurd statistics to pretend the problem is solved?

    Does that sound like a long term vision from a clairvoyant and benevolent government or desperation by a regime obsessed by its own survival?

  • 81 Onedrew April 4, 2020, 2:53 pm

    I do like Ben Carlson’s comment in one of the links: “waiting until the dust settles” is a strategy that has never worked in the history of the markets

  • 82 Vanguardfan April 11, 2020, 9:27 am

    I am also wondering how @Hospitaller is doing. Would be good to hear.

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