Share price lows: when will mar­kets turn around?

The Daily Telegraph - Your Money - - MONEY -

In­vestors’ con­fi­dence has sunk to a record 23-year low as a re­cent mar­ket sell­off, driven in part by ris­ing in­ter­est rates in Amer­ica, has left the FTSE All Share in­dex at its low­est value for 12 months.

Har­g­reaves Lans­down, the stock­bro­ker, which has been mea­sur­ing pri­vate in­vestors’ view of the Bri­tish stock mar­ket since the early Nineties, said peo­ple were now more pes­simistic than they were dur­ing the fi­nan­cial cri­sis of 2008.

It said the low mood had been brought about by the “known un­known” of Brexit, with this month’s mar­ket volatil­ity do­ing lit­tle to set­tle nerves.

Some in­vestors will be ask­ing them­selves: should I sell now in case of fur­ther losses? His­tory sug­gests that might not be the best idea.

Tele­graph Money an­a­lysed data on the 20 largest one-day falls in the FTSE All Share in­dex over the past 25 years, com­piled by Schroders, the fund firm, and found that stocks tended to re­cover sooner than you might think.

There are some anom­alies, but for the most part the same rule ap­plies. At 10 days after the ini­tial fall, the mar­ket will gen­er­ally have dropped fur­ther. How­ever, after a year re­turns are likely to be pos­i­tive again, while at the three-year point re­turns will al­most cer­tainly be pos­i­tive. By the time five years have passed you would be sure to have made a re­turn.

Of the 19 sce­nar­ios for which we have five-year data, 12 saw re­turns of more than 80pc. There were only two sce­nar­ios in which re­turns were below 50pc five years after a slump.

On the worst day, Oct 10 2008, in­vestors lost 8.3pc, but a year later the in­dex had risen by 26pc, while three years later the rise was 41pc and at five years it was 87pc.

Will Hobbs of Bar­clays Smart In­vestor, an in­vest­ment plat­form, said if any­thing mar­ket dips should be viewed as a buy­ing op­por­tu­nity. “His­tory has fre­quently shown that the best time

When will mar­kets re­cover?

to buy is when the mar­kets are at their gloomi­est and trad­ing screens are splat­tered blood-red – yet this is pre­cisely when we are most tempted to sell,” he said. “Ca­pit­u­lat­ing in the face of dread­ful head­lines is un­der­stand­able, as we seek to pro­tect our­selves from fur­ther losses – but of course it has the ef­fect of mak­ing the pain in­deli­ble.

“Stay­ing the course is tough, but can turn those pa­per losses into prof­its if mar­kets re­cover, as they nearly al­ways have done in the past.”

David Coombs of as­set man­ager Rath­bones said in­vestors should ig­nore short-term mar­ket up­sets and adopt a long-term view. He said: “Many in­vestors use fi­nan­cial mar­kets as a sort of su­per­charged de­posit ac­count. They ex­pect to be able to use their cash within a year or so, but are en­ticed by the higher re­turns on of­fer in the mar­ket com­pared with

‘The best time to buy is when trad­ing screens are blood-red’

what they can get in the bank. This is a dan­ger­ous game, and one that leads to buy­ing high, sell­ing low and then swear­ing off stock mar­kets for life.”

Dan Brock­le­bank of Or­bis In­vest­ments, an­other as­set man­ager, said re­tail in­vestors mak­ing their fund se­lec­tions should be look­ing for man­agers who are not put off by neg­a­tive sen­ti­ment sur­round­ing “unloved” com­pa­nies and have the nerve to buck trends. DIY stock-pick­ers would also ben­e­fit from this stoic ap­proach, he said.

“The best in­vest­ing strat­egy in the long term is to avoid pop­u­lar ar­eas of the mar­ket and to look for bar­gains in un­pop­u­lar stocks that are avail­able at low prices,” Mr Brock­le­bank said. “While easy in the­ory, in or­der to be able to do this you have to be able to con­quer the ‘flight’ re­sponse mech­a­nism that makes us re­luc­tant to seek out un­com­fort­able sit­u­a­tions, and the ‘herd­ing’ in­stinct that makes us do as oth­ers do.”

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