Investment Newsletter - January 2016

Page 1

Investment Newsletter January 2016

Media, Myths & Markets Mike Deverell Partner & Investment Manager

Markets remain particularly volatile and very sensitive to any bad news. As we have noted several times, volatility is unfortunately a fact of life in the stockmarket. Our long term assumed return from equities is around 10% pa but that is just an average. When we have analysed the data in more detail, we have found periods where the returns from the stockmarket have been almost 20% pa over a five year period. There have also been periods where the market has been down almost 5% pa over five years on average. More than that, a 10% correction in markets happens virtually every year, and a 20% fall happens around every 4.8 years on average. Our long term 10% assumption takes into account all these drawdowns including true bear markets.

Of course, we invest in a wide range of assets not just equities, some of which have made some very good returns of late. As well as smoothing out volatility through diversification, our job is also to try and work out whether market dips are one of these short term corrections or something more major and adapt portfolios accordingly. True bear markets usually occur for two reasons. Either stocks have been in a speculative bubble where valuations are far disconnected from reality, such as in the tech crash from 2000 onwards, or we are entering a recession. We certainly don’t think markets were in bubble territory, although they perhaps became a bit overvalued. Meanwhile, the data does not currently point to a recession with the global economy steady despite a slowdown in emerging markets. The US and UK economies in particular are still well in expansion.

Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Conduct Authority. Equilibrium Asset Management is entered on the Financial Services Register under reference 452261. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission.


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.