The Daily Telegraph - Saturday - Money
PERSONAL ACCOUNT
We’re standing by with cash at the ready, but what is there to invest in?
Many private investors were deeply dismayed by the outcome of the US election. I don’t mean because they dislike Donald Trump or fear for what might happen to America under his presidency.
No, they were dismayed because the markets did not do as they hoped. Markets did not fall out of bed and provide the same fantastic buying opportunities that many enjoyed after Brexit.
It has long been said that small investors behave like a mindless herd, buying high after a bull run and selling low in panic when the market has collapsed. I question whether this is true.
On the contrary, there is more evidence of this herd mentality among institutional investors – the big fund managers and private wealth firms – which move skittishly from one asset class to another and, in the end, are responsible for the emotional roller coaster the market periodically becomes.
Who was it, after all, who raced to pull money out of UK commercial property funds following Brexit? It wasn’t individual investors who owned small slivers of these assets inside their Isas and pension portfolios. It was professional fund managers, desperate not to lose a few percentage points’ advantage over their rivals. They caused panic in the sector, imposed needless costs on their clients – and now probably regret losing the exposure.
The reality is that many small investors have become successfully contrarian in the years since the financial crisis. That means they’re inclined to buy on “bad news days” and take profits on rallies.
On Wednesday I asked all of the big brokers how their clients were behaving in the wake of Mr Trump’s election. And the answer across the board was that small investors were busily trading.
The strategy had worked superbly in the wake of Brexit.
It is difficult now to remember the mood on Friday June 24, when shocked financial markets digested the outcome of the referendum. Trading volumes were terrific on that day, with some brokers reporting 10 times the usual level, and with three in four trades being purchases.
It paid off in spades. Some of the most-bought shares that day included Glencore, BP and Aviva. Glencore’s shares are up by 94pc since June 24, Aviva by 49pc and BP by 27pc.
No wonder investors approached Wednesday with cash piles at the ready. As we know, the market didn’t deliver: it was largely flat. In those pockets where shares did surge – as with mining stocks, for example – many small investors were selling, to capture profits.