Short termism and looking beyond the noise

I recently had an annual review meeting with one my clients, Sally, who wanted to understand why there had been so much volatility in global stock markets and, she stated that this concerned her so much that she was hesitant about investing more money into her retirement fund and ISA portfolio. She added that the coverage in the media had been so negative in recent months such that it seemed that there was background of doom and gloom – including Brexit, the threat of a US recession and, Trade Wars. I could easily add to this list a myriad of other negativities she mentioned.


However, the role of a financial planner is to look “beyond the noise” and to focus upon an individual’s financial objectives and timescales. Global stock markets go through phases as “nothing goes up forever” and, there will be periods of real concern when expectations don’t go to plan. Thankfully, these are usually relatively short periods over a lifetime of an investment.


We are going through such a phase at present and I would describe it as a period of “consolidation”, where different opinions are giving out mixed messages. Most commentators are looking at the “what if scenario” and placing a spin on any news.


Unfortunately these days, everyone looks for short term results, making a quick buck here and there, hence volatility. Short-termism driven by stock markets is said to come from rapid trading in American equities and, stockholder activists at hedge funds pressurising executives for immediate results and cash, in turn pushing company directors to take short-cuts.


There are several factors which encourage this type of short termism due to both regulation and greater transparency for the investor. For instance, Companies have to give their investors quarterly updates on the performance of their business. Disappointing sets of numbers which are below expectations could trigger a share price to fall in value. Conversely, prices will rise on a good set of results. Highly respected business leaders such as Jamie Dimon and Warren Buffett have promoted the idea that such practices are harming the US economy.


In a recent interview UK Fund manager, Neil Woodford, suggested fundamentals and valuations could be over-ridden by sentiment at the whim of the stock market in the short term but it is the longer term that really counts.


The advice I gave Sally was to increase the regular contributions into her retirement plan and ISAs and, to adopt a more positive stance towards her long-term plans over the next 20 years. Making regular contributions can help avoid market speculation whilst taking away the worry of finding the right time to invest. Global events will have an impact on share prices during times of uncertainty although the long-term trend is usually up over the longer term.


In my 47 years of advising clients I’ve seen many a recession, major companies going bust, double digit interest rates, natural disasters, wars, banking crises and, government bailouts, but stock markets take it all in their stride. Perhaps this link will help readers to focus on the longer term – rather than what you read and hear in the media.


I trust this comment has tried to make sense of what is happening with your investments at present and if you have questions, contact our office on 0333 241 3350


This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case. Investments may fall as well as rise and you may not get back the full amount

Nigel Taylor Cert PFS, Dip FA