For example, in 2003, it looked like January 28 was the bottom whereas it was actually March 12. With the 2009 nadir, the ‘false’ bottom was slightly earlier on November 21 2008.
Obviously, the biggest fall in history was October 1987. The FTSE plunged 10 per cent in a day (October 19 1987) but did not stop falling for three weeks, bottoming out on 9 November 1987.
The fall from close on October 16 to November 9 was 31.83 per cent. If you had been unlucky enough to make your only investment on October 16 1987, it took until May 1989 to get back your money back.
Even with that disastrous start, over five years the return from the FTSE 100 was 42.82 per cent. If you had started investing a little earlier, say at the start of 1987, incredibly you were still in profit at the end of the year, despite the huge autumnal fall.
Hope from China
None of this is to say the stock market will perform the same in 2020. However, the reaction of the Chinese market does lead to a degree of optimism that a sharp rally will ensue.
For clients it is a case of reassurance that this is temporary and not a permanent destruction of capital.
When the tide is out you do see who is swimming naked, and there will be casualties this year from poorly funded businesses. This is one of the key benefits of collective investments (both open and closed ended).
There will be corporate failures, but if you have 10 funds in client portfolios, each with 50 holdings, and if a handful do not survive, then out of a total of 500 underlying companies the impact on portfolios should not be too bad.
The current situation is turning out to be very different to any other crisis we have been through. The tech bubble, Sars and the global financial crisis were all big events, but coronavirus has gripped us globally and shut down economic activity in a way that none of the others really did.
As one fund manager said to me recently, in the GFC, demand was down but not non-existent. With coronavirus and the measures countries are putting in place, whole swaths of the economy will potentially have no trade and no income whatsoever for a period. It really is impossible to predict the effect this will have.
One thing that is apparent is that it is fear not fundamentals that is driving the markets. The VDAX (the European equity market fear index) hit its highest level ever recently, providing opportunities for those who follow the Warren Buffett mantra to be greedy when others are fearful.
Ben Yearsley is an investment consultant at Fairview Investing
