Thinking About Capitulation?

24th August 2023

Thinking About Capitulation?

It would be strange not to feel anxiety about the current state of financial markets. News flow has been considerably positive about investment markets, with inflation remaining stubbornly high, albeit lower than the peak of earlier in the year. As a result, Central Banks have kept pushing rates up, heaping more pressure on homeowners with mortgages. Both equity and bond markets have come under pressure with cash probably the only asset showing positive returns.

It is in periods such as these that investors’ nerves become frayed. When markets fall, the instinct is to sell. We would like to draw your attention to an analogy from the renowned investor Warren Buffet “You should be fearful when others are greedy and greedy when others are fearful”. Whilst we are not predicting that markets will recover in the short term, we would like to remind investors of the power of time in the markets and not try to time the market. Research conducted by the one of the leading investment house Schroders produced the following:

“Over 35 years, mistimed decisions on an investment of just £1,000 could have cost you almost £33,000 worth of returns. Our research examined the performance of the UK stock market, the FTSE100, 250 and the FTSE All-Share.

If at the beginning of 1986, you had invested £1000 in the FTSE250 and left the investment alone for the next 35 years, it might have been worth £43,595 by January 2021 (bear in mind, of course, that past performance is no guarantee of future returns).

However, the outcome would have been very different if you had tried to time your entry in and out of the market.

During the same period, if you missed out on the FTSE250 index’s best days the same investment might now be worth £10,627, or £32,968 less, not adjusted for the effect of charges or inflation.”

The investment committee of Baggette & Co Wealth Management monitors the performance of our portfolios, engaging with the investment managers of the underlying funds we hold. We do not pretend to have a crystal ball regarding the future directions of the markets, but in current market conditions, we believe strongly that patience is a virtue.

The value of your investments can go down as well as up, so you could get back less than you invested.

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