Article 13 | Market crashes happen, but so do recoveries

By Linda Stonier: Stone Wealth Management CEO and Head of Advice

We’re all being bombarded with reports of the effects of Covid-19, including negative news about its dramatic effect on investment valuations worldwide. The relentless media reports in articles and on news channels are probably fuelling your anxiety around this. When you slow down, zoom out and reassess what you know about investing, a different picture emerges.

You know that:

  1. Peaks and troughs are part and parcel of an investor’s experience. Peaks are pleasant, while troughs (such as what we are experiencing now) are uncomfortable. The long-term trajectory, however, is always up.
  2. Remember how quickly the market recovered from its -45% loss in 2008-2009? For all the stress experienced during this period, it was rather uneventful if one simply ignored the noise, ignored their values and stuck to the plan.
  3. History (JSE ALSI period Jan 1996 – Dec 2019) tells us that in the years following a crash of 20% or more (such as the one that we are experiencing now), the local stock market generally delivered returns of almost 22% per annum for 5 years. No one knows the future, but if history can be believed, this would certainly be a welcome return after nearly 5 years of benign market returns.
  4. ‘This time it’s different’ has proven to be the most expensive phrase in the English dictionary. If you look at the biggest stock market in the world, the US S&P500, they have experienced bear markets since 1926, basically averaging one crash every 6 years. The average loss was nearly 40%. It has generally taken 18 to 30 months for the markets to recover back to previous highs following the shock.
  5. Time and time again, more money has been lost by investors switching out of their portfolios than by the markets themselves when prices fall. This is because investors often sell out, locking in the losses and missing out on the recovery. It is impossible to time the recovery.
  6. It is clear that the sun always shines again after calamitous periods and that investors are rewarded when they are patient and disciplined.

What should you do?

Be patient and disciplined. Do not allow human emotion to destroy your wealth and derail your investment strategy.  It will not be useful to look at your values now.

Focus on the things that you can control, such as staying locked in and protecting your health. Leave your investments to the professionals who will unemotionally be taking advantage of the various opportunities that present themselves when the time is right. Their focus is on your long-term success and so too should yours be. Do not undermine your Investment Strategy by irrationally selling out of your portfolio and moving into cash.

In the investment world, it has often been said that one must never waste a crisis and we are certainly in the midst of a serious global crisis now. But remember, crises do present investment opportunities. At Stone Wealth Management, we have navigated our clients’ capital through many bouts of turbulence and our advice remains unchanged:

  • Do not get swept up in short-term market negativity
  • Stick to your plan no matter how uncomfortable it is
  • Allow time to do its thing and focus on your long-terms goals

And finally, remember, this too shall pass.