The markets, however, seem to be taking the prospect of future crises largely in their stride. Perhaps the prospect of a departure so soft as to mean the very minimum of upheaval to trading arrangements has becalmed them. Or perhaps, as several readers claimed was the case when responding to my editorial a fortnight ago, they are rather bored with Brexit. Maybe, after months of political crisis across the eurozone, they are bored with politics altogether, or have simply become used to the ongoing uncertainty.
Indeed, uncertainty is something investors, especially in equities, should be more than used to by now. And although such uncertainty is often more associated with smaller companies, investing in the largest shares can be equally fraught – just look at the share price performances of the 10 companies we cover in this week’s Income Majors feature, or other troubled income stalwarts such as BT or Marks and Spencer, whose annual meeting our team visited this week (look out for the upcoming podcast). Blue-chip status does not confer absolute reliability, hence our in-depth look at these companies’ continuing ability to pay out the dividends so many of us rely on.
Yet although we often cannot find certainty, there are truisms that can guide us through our investment journey. One is that, whatever the short-term gyrations of markets or share prices, equities have over the long term always delivered the goods – analysis by Dimson, Marsh and Staunton in the latest Credit Suisse Global Investment Returns Yearbook shows that UK equities have returned an inflation-adjusted 5.5 per cent a year since 1900, versus 1.8 per cent for bonds. Even a century of conflict and political crisis have not stopped the march of equity markets – the dream of finding a better way, through reinvention or creative destruction has continued to drive returns from equities ever higher.
And there is one absolute certainty that explains much of this: mathematics, and particularly the maths of compounding and risk premia, which along with dividend reinvestment explain why equity’s ‘optimists’ – as Dimson et all describe those championing equities – have triumphed over the years. By embracing the risks that accompany the equity market's ever-shifting landscape, the rewards will continue to flow.
