Here we are after another set of significant falls in global markets and while the picture is very slightly better this morning, there is still time for it to unravel further. But what does it actually means for investors and are further falls really likely? Well I remember being on maternity leave in 2008 and watching the TV reports of the market falls at that time. I can clearly recollect the images shown of the Great Depression and the reporter stated that it was likely that by 2009, a lot more people would be living on the streets and unable to even feed their family. It was alarming but clearly didn’t happen in the way it had been portrayed and clearly markets started to recover.
So what are we facing? It’s fair to say that markets have dropped considerably in the last 24 hours, however we are still at a level very similar to that of last month and therefore the moves in between have simply been the results of some very limited trading and people over reacting or under reacting to announcements. Frankly I’ve been surprised by previous days rises and the ignorance of the fundamental bad news, so in many ways it is a relief to see that now priced in and an acceptance of the more serious situation we are in. But is this going to end in Armageddon? Even if we were to face a very significant fall in the value of the stock market (far more than we’ve seen in the last day or so) just remember that the economy still keeps going, people still go out to work, people still need to shop, save, invest and borrow. The model is not under threat but the assumption that ‘good times’ last forever has had to be addressed.
I am not trying to ignore the fundamental economic problems many countries around the world now face. It will take time to unravel and to factor in the many ripple effects that this contagious view will cause. But I would rather we deal with this problem now and get as much of the bad news factored in, rather than the slow and constant drip feeding. We are not children, give us the bad news and we can deal with it and move on, otherwise this negativity will last a lot longer than it needs to.
So what should you do? Well of course these are just my general views and not in any way specific advice, but overall you should probably be sitting tight (of course it depends on your circumstances and your need to access capital) make sure that you are in the right investments, that you have a financial plan in place which remains right for you and then you wait. Yes these falls are worrying and very difficult at the time you experience them, but prices will rise, prices will fall and in a number of year’s time I believe we will simply look back on this as another (large) blip on the graph. Give it time.