18 March 2020

Lessons from History

During my long career in the investment industry I have lived through several bear markets.


All have felt uncomfortable and, at the point where the bottom was reached, it has felt as though any recovery is simply not possible. The causes of these bear markets have been varied. The worst in my experience took place in 1973/4. Then we had a quadrupling of the price of oil, following the Yom Kippur war between Israel and the Arab states, a three-day week and frequent power shortages as a consequence of the miners’ strike and the secondary banking collapse. Shares lost 70% of their value from peak to trough, but recovered dramatically in 1975.

We are in bear territory right now and, sure enough, prospects for recovery look a long way off. Markets were slow to react to the possible economic consequences of the pandemic, but as ever more stringent measures were introduced by those countries suffering from the spread of the virus,  investor panic set in and the long bull market that had been in place since the recovery following the financial crisis of 2008 came to an abrupt end.

We have seen a rapid reversal of fortunes, though not the most dramatic collapse in share values I have experienced. In October 1987 shares in London fell enough to qualify for bear market status in a single day which, unsurprisingly, became known as Black Monday. True, the situation then was exacerbated by the closure of the London market on the previous Friday which is when the collapse on Wall Street started, but it felt very uncomfortable at the time, believe me.

The problem we face today is that the problem is worldwide and nobody can be certain what the final economic consequences will be or how long this state of affairs will last. There are some brighter signs emerging, though. In China, South Korea and Singapore it looks as though the peak in this pandemic has passed. In China and America plans to produce a vaccine are well advanced, with clinical trials being undertaken. But in Europe we are still in the early stages of the spread of the virus and damage to many industries is now irreversible.

We have a particular problem in this country, which is more densely populated than many other European nations and has a health service already overburdened. Such is the speed at which things are changing, it would be foolish to make firm forecasts, but my experience in the past tells me we will get through this difficult time. Quite when is impossible to predict, but it is interesting to see that the incidence of directors buying shares in their own companies is on the up. In the meantime, analysts will doubtless be running their slid rules over industries and individual companies to try to work out how best to position portfolios for the future. Investors need to stay calm.


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