Patience Is A Virtue

Investment Principles

2016 will go down in history for many reasons – the year of the underdog and shocks we are constantly told.

But some things do not change and perhaps should not surprise us, in particular how the ‘noise’ emanating from the investment world ebbs and flows depending upon the latest forecasts and expert sentiment.

Let’s cast our minds back to January 2016. The Chinese equity market wobbled and fell dramatically (7% in one day I recall) and was suspended for short periods of time. The price of oil also plummeted and added to ‘market woes’ making us all feel a little uneasy as the media churned out the usual ‘X £Billion wiped off the value of UK shares’ blah, blah.

Our worries were perhaps compounded when another ‘expert’ this time from RBS, told us to “sell everything” (except high quality bonds) as we were heading for a “cataclysmic year” whereby the UK and US equity markets would see falls of between 10 and 20%.

 

So through all the fog and noise, let’s look back at 2016 and consider some facts;

 

  • Despite the turmoil in early 2016 the FTSE 100 ended +14.4% over the year (currency fluctuations playing their part too) closing at an all-time high
  • The index recovered from an intra-day low of just under 5,500 after the vote on June 23
  • The FTSE All Share (a much better proxy for the UK market) rose by 12.5% (exc dividends)
  • The FTSE Small Cap Index rose by 11.0%

 

The big question is ‘so what’? What does all this mean in the context of the way that we all invest be it for our retirements, to provide income to live on or to build a nest-egg for the future? The simple answer is very little.

 

Short-termism has nothing to do with the long-term nature of investment returns, and in fact such years where there is greater volatility on the equity markets are perfectly normal and, without this volatility, the positive returns would not occur. I have no desire to be wise after an event in the same way as I do not predict what may or may not happen. But if 2016 has taught investors anything it is, as my old Football Coach would shout to the team “keep your shape”.

 

A poignant reminder that – Patience and Discipline are two key principles to successful investment outcomes.

 

The facts remain that over long periods of time there is a very good chance, but no guarantee, that assets such as equities and property will provide real growth i.e. above inflation, which is the reason why we all invest in the first place. History tells us that for example over an 18-year period there is a 99% chance that equities will out-perform cash*.

My final point is to remind you all that timing the markets in and out is virtually impossible to do consistently and therefore the most important factor around market noise is how we react to it – or rather that we do not react to it.

 

The final word goes to The Sage of Omaha, Warren Buffett who famously said “The stock market is a device for transferring money from the impatient to the patient”.

 

Happy New Year.

Paul Spires – Chartered Financial Planner Director – Sound Financial Planning Ltd.

*Source Barclays Equity Gilt Study 2015