Tag Archive: stock markets

  1. Don’t Panic, Captain Mainwaring

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    Unfortunately Corporal Jones didn’t heed his own words, proceeding to panic with often hilarious results.

    Panic is a response to fear, part of our normal make up as humans. However, Dr Steve Peters who wrote “The Chimp Paradox” might argue that it is not a rational response when stock markets around the world are falling. It is, of course, a typical response to the noise from the media. Bad news travels quickest. Steve Peters argues that we all have a chimpanzee in our heads – that part of our being that can sometimes be irrational, angry and emotional. The human in our head is rational, fact-based, analyses data and operates a balanced judgement. One of the secrets to a successful life, he argues, lies in controlling our chimp.

    The academic approach to investing, backed up by Nobel Prize winning research, is rational, fact-based, analyses data and operates a balanced judgement. It tells us that in the short term the stock market will always be volatile, a bit like a rollercoaster. Lexington Wealth Management takes the view that nobody should be investing in the stock market for the short term. It also tells us that, in the long term, it will bring rewards.

    Money that might be needed in the next two years should be held in cash and allocated to the short term jar. Liquid capital should always be available particularly when stock markets are falling.

    Medium term money, money which might be needed in three, four or five years’ time, should not be invested in the stock market either. Medium term money should be lent to governments and companies (short dated bonds and gilts) and over a minimum timeframe of two years should never post a negative return – although we should always remember that the future may be different from the past. The medium term money will also fluctuate in value from one day to the next.

    The long term jar, which does invest in the stock market, is for money that is left over after having filled the short and medium term jars. Over most five year periods, the stock market is likely to be higher at the end than it was at the beginning. The evidence tells us this.

    Even for those clients with greater appetites for risk, very few have more than 60% of their long term money invested in stock markets. Not all stock markets around the world fall and rise at the same time as the others. Just because stock markets fall, short dated bonds and gilts (and indeed commercial property) do not necessarily fall. This principle of diversification helps to smooth returns.

    The evidence tells us that, in the long run, bonds will perform better than cash and equities will perform better than bonds. At times of market distress we need to have faith in the future. Despite all of the scare stories that we read, see and hear it does not appear that the fundamental premise of risk and return is mistaken. After all, no one in their right mind would take additional risk unless there was a reasonable prospect of a better return.

    What should we do? Boring though it sounds, the correct answer is to stick with the plan. Nobody, in advance, can predict when markets will go down, whether they will go down more or when they will begin to go up again. Many will give an opinion but they can’t predict the future, not even the gypsy fortune teller. No rational person would expect the gypsy to know the future; yet many rational people choose to believe financial experts” who profess to have the same visionary skill!

  2. The Markets

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    There may be potential for a reality television programme starring central bankers and the making of economic policy. It could be called, ‘The Real Central Bankers of the European Economic Community.’ Just imagine the last two weeks’ episodes. Two weeks ago, the Swiss National Bank shocked markets by unpegging its currency and sending the value of the Swiss franc skyward. (more…)

  3. The Markets

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    More monetary stimulus will not help the world economy return to strong growth, former Bank of England governor Mervyn King said, days before the European Central Bank is expected to decide whether to embark on a massive bond-buying programme. This is a report from the Telegraph today. (more…)

  4. The Markets

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    You may be enjoying the economic benefits of petrol prices around £1.10 a litre, but last week investors were skeptical about the effect of low, low oil prices on companies’ performance during 2015. (more…)

  5. The Markets

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    It was no fun to be an investor last week. The week prior, a commentary in The Wall Street Journal’s blog, MoneyBeat, offered this insight:

    “Falling oil prices are thought to be good for stocks because they stimulate consumer spending and hold down inflation. The lower costs support economic growth, boost corporate earnings, and lessen pressure on the Federal Reserve to raise interest rates. The stock market loves that mix.” (more…)

  6. The Markets

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    Is it a melt-up?

    You’re familiar with the word melt. Ice cream melts. Snow melts. You may have seen someone melt down (or have done it yourself). Right now, markets may be experiencing a melt-up, according to Barron’s. Melt-up is a counterintuitive term which describes a sharp, emotion-driven improvement in market performance. Last June, The Wall Street Journal blog described the melt-up phenomenon like this: (more…)

  7. The Markets

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    So here we are, still faced with a huge deficit, and although it has come down over the past few years, it is now showing signs of flat-lining and even rising slightly. The Tories claim they have the answer, and I expect Mr Milliband says the same although he just forgot to mention it, and we await somewhat wearily the views of the others. So are we stuck in a funk and unable to retrieve the situation and just doomed to be sucked into the Slough of Despond?

  8. The Markets

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    If you’re familiar with fairy tales, you’ve probably encountered a story or two that involves the granting of wishes. Usually, these are cautionary tales. Well, there was some wishing going on around the globe last week and, if the wishes come true, the outcomes may be less beneficial than anticipated. (more…)

  9. The Markets

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    It’s déjà vu all over again!

    Last year, pundits and analysts tried to discern when the Federal Reserve might begin to end quantitative easing by reading economic tea leaves. For months, bad economic news proved to be good news for stock markets. This year, investors are seeking signs which might indicate when the Fed will begin to raise interest rates and, once again, bad news has become good news. Last week’s weaker-than-expected unemployment report helped push U.S. stock markets higher, according to Reuters, because it was interpreted to mean the Fed would not raise rates soon.  (more…)

  10. The Markets

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    French citizens are usually quite cynical over their leaders and especially those who these days seem to be guided by their spin ‘Meisters’ in managing their media coverage. In France the leaders’ media story was obviously going to be dominated by the centenary of the outbreak of the First World War, as well as the liberation of Provence and Paris. This provided a
    perfect platform for the President to look statesman-like and a natural leader for the nation. (more…)