Further to our email late last week, you may have read the news of a further significant downturn in the market today – currently around 5%.
We understand your concerns regarding this matter and we are continuing to monitor the situation, but wish to advise of a number of points:
- It is normal for markets to drop 10-20%. A 10% drop happens quite regularly but the swiftness of this drop is what seems to be causing overall concern
- As a comparison, between late August 2018 to last December 2018, the ASX dropped around 14.3% – which, excluding today, was slightly greater than the drop we have had over the last couple of weeks
- From there (January 2018 to the market high in February 2020), the market subsequently rose just over 31% – so market rebounds can be significant
- The market usually ‘overshoots’ on the way up – meaning that it does run too strong/high. Similarly, they usually overshoot on the way down as well. Most market players said that it probably had run too hot, but did not know when or by how much it would correct
- We don’t believe COVID-19 has solely caused the 15%+ drop – it was simply the catalyst that the market may have been looking for a reason to pull back
- Our market drop has been exacerbated by the large majority of stocks also going ‘ex-dividend’ (that means you are entitled to receive the dividend – but have not yet received them).
- Excluding dividends, the market is down around 5% from where it was only 12 months ago – including dividends (which are around 4-5% pa), most of our clients portfolios would be roughly breaking even over this period
- Trying to time the market – ie. selling at the top and buying at the bottom is folly – you may get lucky once or twice, but odds are very much against you in getting it right regularly
- We have been letting clients cash balances build over the last 3-6 months, which allows for both payments of expenses/pensions and funds for further investment purposes. In short, there is minimal/if any need for clients to sell any investments at these depressed prices