How long it took for the FTSE 100 to recover from crashes

Source: Refinitiv and Schroders. Data based on FTSE 100 index, 31 December 1985-30 November 2020.

The Covid blip did not even feature!

The blip that accompanied the announcement of the pandemic, does not even get a mention. 2018 is notable for not just getting one but two mentions and the most severe troughs of the past 40 years are hardly  stuff of investment folklore (2003 anyone?).

My point is that the popular imagination of a crash is usually focused around folklore. In 1987 , the stock market crash was simultaneous to the great storm, there has been Brexit, Covid and 9/11 – all of which characterize what we consider market shocks. So we tend to react not to long-term shifts in economic value – such as the discovery in the early part of this century that the tech euphoria of the late 90s was mostly froth.

Tom Stevenson is fatalistic about this moment in time

The list of things to worry about has got considerably longer since the spring – inflation, broken supply chains, rising energy costs, an imminent turn in the interest rate cycle, high-ish valuations, stretched profit margins, slowing earnings growth. I could go on.

Even if it is not imminent, a correction will happen at some point. If you look at the performance of the S&P 500 in the three years following each of the major bear market bottoms over the past 60 years, there has been a pull-back of at least 10pc at least once.

Which should send me rushing to sell my direct holdings and my units in equity based stocks. But I know I won’t , just as I didn’t when my friend Peter Tompkins he had sold into cash in March 2020. I expect that Peter got back into the market at the right time and sold high, bought low. But I don’t trust myself to do this and I’ve been wondering why.

Here are my conclusions

1. I am fundamentally optimistic – I believe in the idea of productive capital. I read the bible as a boy and it told me that the man who buries his money in the ground will be reproved by the Lord when called to account.
2. I fear buying and selling, it’s not just the cost, it’s the irrevocable decision that carries risk to my well-being that outweigh the risks of doing nothing (I know I sound very foolish writing this as an entrepreneur.)
3. I do genuinely feel I have the patience to last out a market decline (though I don’t think I’d be patient enough to last out a Japanese market decline). So I guess I think about my markets (eg what’s above).

There are probably a number of other reasons including a sheer lack of attention to what I’m doing as an investor. When Tom tells me how to “sell down” my equity exposure, he suggests….

You can have as much cash as you like, and when that correction does come you will be glad you have it to hand. But remember too that the cash you do hold is guaranteed to lose money in real, inflation-adjusted terms right now.

Additionally, that cash is only useful if you put it to work at some point. So, take the opportunity now, while your mind remains calm, to set yourself a target level at which you will get back into the market – however queasy it makes you feel. Do it now, because you won’t feel like it when the market has fallen 15pc.

Second, take a look at your current portfolio. Make sure that the recent winners have not grown too big. If you have benefited from the extraordinary rise in technology stocks, consider taking some of the gains off the table.

If you have a record of how much these stocks were worth in your portfolio a year ago, perhaps sell down to that level and redirect the proceeds into less frothy investments.

Daily Telegraph readers are obviously made of stern stuff, capable of managing their portfolios according to a quantitative model with access to high quality information as to what they hold and in what proportion.

Which should remind me of the most important part of this blog. Which is that I am not to blame myself for not following Tom Stevenson’s advice (even though I am sure it is good). Because my well-being is not going to be impacted by the state of my equity holdings.

My well-being is primarily to do with my relations, to myself, my family and my God, secondarily down to my ongoing capacity to work and make money and finally down to the good fortune I have to live in a country where there is some kind of a financial safety net from the state.

I will be 60 in a few weeks, an age that I used to think was a target to have earned enough to have stopped work. The money that I have in equities, is mainly in pensions and to be quite honest, if I could transfer it into a “wage for life” that wasn’t called annuity, I would do so today. I do not need the worry that I get from reading Tom’s article.

So – for the sake of my well-being, I would be very grateful if some well-meaning master trust (or indeed super-trust) would allow me to transfer in my DC savings pot so I can swap it for a scheme pension which pays me “annuity-plus” and stops me having to read articles like Tom’s – with dread.