Tricks no Treats

Before you read this blog its worth re-reading my recent October 2018 Investment update.

The FTSE 100 has continued it’s fall.

We are back scraping along at below 7000 points. During the month of October (so far) it has fallen from 7495 to 6962. That’s down 7.1%.

But before “Remainers” point the finger again, it’s worth considering how other global stock markets have done recently too.

The Dax

Let’s start with Germany. The Dax Index started the period at 12339 points and ended it at 11191 points. That’s down a whopping 9.3%. Now we can’t blame Brexit for that. We are to assume that leaving the EU is a polar competition. We lose because they win. That’s plainly not true.

The S&P 500

On to the good old USA who have had much of the year their own way. Home to the mighty FAANGs. Facebook, Apple, Amazon, Netflix and Google. The S&P 500 is down 9.1% in October so far.

The MSCI All World Index

Is there any glimmer of hope anywhere in the world? Unfortunately not. The MSCI All World Index is down 8.95% in October. This is an index of all global markets.

It’s a Nightmare on Every Street

There have been no treats this October, just wicked, horrifying tricks. Every investor in the world has lost some of their gains. The markets have retreated to where they were 2 years ago. A couple of weeks ago I said:-

October generally holds a few surprises, but then global markets usually start to rise from here.

October has a bad reputation

Bad things do happen to global stock markets in October. It’s a thing. It has it’s own moniker, “The October Effect”*

Black Monday, the great crash of 1987 that occurred on October 19 saw the Dow plummet 22.6% in a single day, is arguably the worst single day. – Investopedia

There has also been an October Black Tuesday, a Black Thursday and two Black Monday’s in total. A dark month indeed.

A couple of weeks ago I also said:-

In Brexit pre-occupied Great Britain, we believe much of the UK’s investment performance is driven by the negotiations held with the EU. “It’s all about us”. It isn’t. We are not the centre of the world’s investing public.

It’s all about The Donald

Currently I’m in the States. It’s a useful time to be at ground zero. I was also here in 2016 in the run up to and on the day when Trump was elected. I decided to “go large” just before Trump’s election victory and re-invest some of the cash we had on the sidelines following the Brexit vote six months earlier.

In two weeks time we have the US mid-term elections. The American investing public are spooked and can see they are between a rock and a hard place. They face a dilemma.

If the Republicans (Donalds party) can hold their gains it could be a sign of not just two, but six further years of Donald Trump “Putting America First”. His policies have actually been bad for many US companies like Ford, with their worldwide supply chains and markets.

If however the Democrats make gains, Trump’s power is weakened. If they take much more control, Trump could end up being impeached. Old wounds will be re-opened as Trump goes the same way as Nixon did.

Neither inspires confidence for the largest stock markets of the world and the lions share of the global investing public. Many US funds and US private investors have now done what we did earlier this year. They have sold down to cash and are waiting until the outcome on the 6th November starts to look a little clearer. If there are more sellers than buyers – the markets fall.

Other clouds on the horizon

Well it’s all about politics everywhere.

There isn’t much evidence of strong leadership from any country on the continent. Macron in France has lost 3 of his senior ministers who each disagreed and resigned in the last 3 months. It looks like Merkel’s leadership is now all over as extremism is growing in Germany along with an understanding that industry needs a Brexit deal as much as we do. The EU is individually threatening Italy, Austria, Czech Republic, Hungary & Poland, who each are disregarding one rule or another.

The EU has many more existential problems than just it’s second largest contributor trying to leave. I’m pretty sure the EU officials would not be acting the way they are if they too were democratically elected.

What next?

Everyone loves a bargain, myself included. I intend to re-invest much of our cash as soon as the coast looks clear. That cash held has only limited our falls so far, we would have needed to hold everything in cash to avoid any of the falls.

I’m monitoring developments all the time. Investors don’t like uncertainty. There has never been a more hated President over here, although a large section of the voting public who don’t check his facts do believe he is doing a great job. Once the question of the mid-terms has been decided, investors will once again re-invest into the perceived winners. The world will follow the momentum.

Good Discipline

I would like to thank all of my clients for the good investment discipline they have shown throughout this recent downturn. It hurts, I know. Our internal devils mock us. But we do remember that we are investing over our entire lifetimes. This isn’t the first downturn many of us have lived through. We know it won’t be the last either. It causes stress in the short term, but over the long-term having an investment plan and sticking to it is what generates larger returns.

*DEFINITION of ‘October Effect’
The October effect is a theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological expectation rather than an actual phenomenon as most statistics go against the theory. Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. The events that have given October the reputation for stock losses have happened over decades, but they include the Panic of 1907, Black Tuesday (1929), Black Thursday (1929) Black Monday (1929) and Black Monday (1987). Black Monday, the great crash of 1987 that occurred on October 19 and saw the Dow plummet 22.6% in a single day, is arguably the worst single day. The other black days, of course, were part of the process that lead to the Great Depressi​on – an economic disaster that stood unrivaled until the mortgage meltdown nearly took out the whole global economy with it. – Investopedia