In a year I’ll be glad I did not dump shares
Ijoined the JSE in February 1972. The first few years of my career were spent clearing the imbalances that resulted from the frantic levels of trade that ended with a bang in October 1969.
It was my first experience dealing with the consequences of a market meltdown, not knowing I was to encounter many more in the road ahead.
During the 1976 Soweto uprising the outlook for the country was so bleak there were days in which we did not record a single deal. When the market crashed in October 1987, clients who had beaten down doors demanding shares in new listings unashamedly reneged on their commitments.
Markets were still reeling from the 1998 emerging-markets crisis and the bursting of the internet bubble in late 2000 when terrorists flew planes into the World Trade Center in New York, in September 2001. US president George W Bush’s attack on Iraq in 2002 simply extended the slump.
BANKING CRISIS
The recovery in markets that began in March 2003 peaked in October 2007 when the failure of the sub-prime mortgage market in the US developed into a full-blown international banking crisis. From October 2007 to March 2009, the S&P 500 index lost more than 50% of its value.
After exceptional returns in 2019, investors, anxious that markets were overstretched after 11 years of gains, entered 2020 looking for a reason to press the reset button.
No-one, though, believed the market would experience a severe correction. The IMF and other similar organisations were forecasting a pickup in global growth and an improvement in corporate earnings. It was a year in which earnings were expected to catch up with valuations.
The scale and speed of the recent fall in global markets caught everyone off guard. Nothing of this magnitude had been experienced since those bleak days of 2007. On Wall
Street the S&P 500 has plunged 30% from its record peak on February 17. Similar slides have been suffered on all global exchanges.
The panic selling has been triggered by fears that the spread of the coronavirus would strain the health resources of most industrial nations and that the social and economic lockdown imposed on society would tip the global economy into recession. But this will not be a conventional recession. The reduction in growth will result from broad government action to lock down their economies.
When restrictions on social interactions are lifted, growth will rebound, helped along by generous packages the authorities have introduced. Stock markets should follow and recover their losses.
It’s far too early to gauge what happens next. No-one really knows. But what we do know is that people feel the pain of loss far more acutely than the pleasure of profits. Calm will only return when cases of the coronavirus in the developed world begin declining or when medical systems are seen to be coping with the increased outbreaks.
Viruses have been with us forever and we will certainly see repeats in the future. In all cases we’ve overcome the threat.
Despite the bumps and bruises I have suffered in my time on the JSE, if I’d invested $100 in the US market on my first day at work in 1972, it would be worth about $2,400 today, a return of 7% per year. A R100 investment would have grown to R50,000.
One thing I am assured of is that a year from now I’ll look back and say I am glad I didn’t panic and sell out.