AS we round off the most unusual of years, here’s a brief look at three lessons the Barclays investment team is taking into 2021.
Lesson 1 – Bear markets are emotional
As many investors have found over the years, it’s all very well to talk about what you will do when the price of an asset falls sharply; it is, however, an altogether different thing to act on these plans when a crisis hits.
If we look back to March, following through and committing your hard-earned savings to the FTSE 100, which had just fallen by a third, was far easier said than done. For even the steadiest and most ruthless investor, emotion is bound to play a part in such a crisis.
This was a year when we were very grateful for the input of our in-house behavioural scientists into our investment process. Evidence based, dispassionate investing allowed our tactical investing team to see the opportunity to add significant quantities of equity and high yield to our multi asset class portfolios at the end of March.
The key lesson here is simple – try and remain calm even when markets and news headlines are at their most turbulent. It’s easy to think about cutting your losses, converting your investments to cash and moving on. The reality is that, over the long-term, the ability to hold your nerve and stay invested is key – particularly when the market drops.
Lesson 2 – Past is prologue?
We often look to the past to orient ourselves in the ever-confusing present. However, when it comes to making sound investment decisions, proceed with caution: over-reliance on inaccurate historical context can be dangerous. Those investors who had relied too heavily on a play book of recessions and bear markets of the past might have found themselves stranded in 2020.
While the market descent was faster than most we’d seen before, the recovery has been equally breath-taking. In 2020 many of the historical patterns went out the window, including a remarkable response from the world’s policy makers - the speed and muscularity of which has never been seen before.
The message here, as usual, is to beware of confident predictions and the application of only one perspective on a time in history. The future remains unknowable from our current vantage point, no matter how much we squint. We need to invest accordingly.
Lesson 3 – Technology is the saviour
One of the few reassurances that can be taken from this crisis is the reliability of human innovation. Within the stock market, this is often conflated with technology (or related) stocks – and for good reason, as evidenced by strong year to date returns.
From the spike in online retail sales to the increased adoption of technology to support people working from home, there are few aspects of our lives that haven’t changed as a result of the pandemic.
The roll-out of multiple, highly effective vaccines is another excellent example of human ingenuity, achieved through an unprecedented international effort by the scientific community.
The start of a vaccination programme has undoubtedly brightened the medium-term outlook for the global economy.
Of course, we should be mindful that the current price to access these forces of science and technology innovation – and the resultant cash-flows – is sufficiently attractive. Based on our latest assessment of prospective returns, our investment team still sees merit in getting invested (and staying invested) in a multi-asset fund.
Investors should also bear in mind that the beneficiaries of technology aren’t confined to their creators and they should cast their investment net well beyond the superstars of today and keep looking to the future – while keeping a diversified portfolio at all times.
:: Cahir Gilheaney is a wealth manager with Barclays Wealth & Investment Management team in Belfast
