Rupert, Yogi, Paddington, Pudsey.
All are yet to comment on the FTSE 100 Index entering a bear market, but you would suspect they are not happy with such slanderous negative connotations.
Bulls and bears.
Part of the pantheon of investment metaphors commentators like to roll out at times like these.
The opposite of a bull market, a bear market is when a market falls 20 per cent from a peak; and that is exactly what the UK’s blue chip index has done since April.
It is another don’t panic moment for investors.
Previous bear markets have been worse, such as the 1970s oil crisis, the millennium’s tech bubble bursting and the global financial crisis in 2007-8.
The main factors behind this slide are China’s economic slowdown and the fall in the oil price, which are causing lost revenues, profits and uncertainty.
Markets hate uncertainty.
Nothing makes them more jittery.
Solid fundamentals and a calm head are the prescribed treatments and fundamentally the US is strong, Europe is recovering and the UK is going steady.
China is the counterweight to this, the impenetrability of its official GDP figures giving foreigners the headache of either taking them at face value or listening to the whispering voice of scepticism over their validity.
The former option is typically taken, with the fog surrounding the data having to be disregarded.
The latest data from China put its full year gross domestic product growth at 6.9 per cent, the slowest for over 25 years.
With manufacturing and construction suffering, the now well-documented ripples have reached the shores of the basic resources-heavy UK stock market, contributing to the fall.
Likewise, a fall in Chinese demand for oil plus a glut of supply has left oil companies who had previously stated a new normal price of $60-80 per barrel of oil would still be sustainable clearly fretting at it reaching the $27 mark, the lowest since 2007 – by chance, the last time we saw a bear market.
It may sound like a daunting coincidence but it is not and with regard to what to do now, investors who have seen The Revenant, starring Leonardo DiCaprio, can learn from his example.
In the film, he is attacked by a bear.
It is unclear which bear – potentially Yogi, after a picnic basket – and initially DiCaprio’s character panics and he tries to fight back.
This does not work.
Further mauling ensues.
Eventually he plays dead and this is sufficient to make his escape.
However, he’s badly injured and it despite it looking like all hope is lost, with time and experience he is able to crawl home, albeit slowly and by overcoming several unexpected setbacks.
As a metaphor for investors, it is perfect.
If you panic and start to fight the bear (market), history suggests you’re more likely to be mauled (financially).
Sell now and you will probably be selling nearer the bottom than the top.
Headlines screaming the FTSE 100 has had its worst start to a year EVER are not helpful for the nerves of the inexperienced.
You cannot judge performance fairly by looking at a two week period.
Stock market movements need to be looked at over years not weeks.
One man’s market fall is another’s buying opportunity and experienced investors invest their money for the long term, keep calm and ride out such storms.
The secret is to be smarter than the average bear.
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