The turbulent times the world has suffered have been mirrored on equity markets in recent months. Covid aside – and perhaps Covid related – we have seen major civil unrest in the US ahead of what will again be a pivotal US election later this year for the markets and indeed the world.
China, long the lynchpin of global growth, is suddenly the source of much geopolitical tension as it slips into a new cold war with the US and aggressively pursues its own strategic ambitions in Asia.
Meanwhile, the economic consequences of the West’s response to the threat of Covid 19 have been so severe that it could permanently damage the prospects of many industries. And, not to be forgotten, there is Brexit - still chugging along in the background. In so many instances it is hard to imagine things will ever be the same again.
And yet that is what markets are telling us will happen. After a savage sell off in March and the fastest bear market in history when the severity of the Covid threat was first recognised, the bounceback has been unprecedented. That has meant that lots of people who suffered very heavy losses in the first instance have already been able to recoup their losses in the year to date, by hanging on and adding to positions on the dips.
Yet that is easier said than done, of course - many others who shifted to cash or who did not have exposure to the sectors that have driven the recovery will not have enjoyed the same recovery. And let us not forget that the market bounceback has not been driven by any significant improvement in underlying financials or outlook, but by the largest peacetime stimulus ever unleashed.
There are so many lessons to be learned here, but three stand out. One is that trying to time the ups and downs of markets is very hard. Shift to cash at the wrong time and you may miss the recovery when it comes, which is often after the markets' very worst days.
Secondly is that concentrated exposure can exacerbate losses and limit recovery gains if that concentration is in the wrong place. And finally even those who have stayed strong through this should count their lucky stars that the market, especially one propped up by so much monetary and fiscal largesse, is not the economy.
Given the risks I have already described, and the pressure that is building, we may not be so lucky a second time. That’s why what this webinar covers is so important - diversification holds the key to this in many ways.