By Craig McAvinue – 4 May, 2023
“ Investors should purchase stocks like they do groceries, not like they do perfume.”
April has come and gone, an all round positive month for all developed indexes sees us chipping away at the losses suffered during the “annus horribilis” that was 2022 from a equities market perspective.
Data table is from Google Finance
We see fairly benign results on the currency side, with the USD enjoying mostly small gains, the exception being the Euro.
Data table is from Google Finance
There definitely seems to be a settling down feel to the markets. The VIX index, which measures market volatility, closed the month at less than 16, a number not seen since June 2021 and a significant drop from its March high of 25.
Inflation figures in the United States are down to their target of 5% and while another interest rate rise is expected in the Federal Reserve Board’s current meeting, this will have been taken into account and many analysts believe this will be the final interest rate increase in 2023. Many also believe we will see interest rates being actually cut at a later meeting this year, signifying a change of policy and making the market more attractive as cash becomes less so.
The war between Russia and Ukraine is now well over a year old and the issues that this shock to the system caused are now better managed.
When it comes to stock markets, everyone knows that you should never feel complacent. By their nature, they are volatile and subject to swings caused by incidents beyond anyone’s control. However the current environment of controlled inflation, decreasing energy costs and the overselling that resulted in the low prices we saw at the beginning of 2023 all suggest we are in for a more steady period of growth in the coming months.
It’s times like these where investors should go back to the basics. Warren Buffet has always been a great advocate of two strategies. One being buying an index fund such as the S&P 500 so you have enough exposure to big companies but sufficient diversification to spread your risk. The other is deploying Dollar Cost Averaging, where cash is invested periodically over time, usually monthly or quarterly, to average any ups and downs that the market may experience.
I read an article written on 20th April which stated that $1,000 invested in the S&P a decade earlier would have tripled to US$3,217. This is also factoring in the huge falls in the value of some of S&P’s big boys where we have seen hundreds of billions of dollars in market capitalization disappear.
The old sporting adage that form is temporary but class is permanent is one that can often be applied to companies and investments. Meta Platforms, which is the trading name for Facebook, suffered huge drops in share price during 2022. This year, however, the price has doubled. Although not near its high of September 2021, if you hadn’t taken profits in your Meta holdings at some point prior, then your portfolio probably wasn’t being managed properly. The return to a more reasonable valuation is now here. It’s these sort of businesses that Buffet refers to when he talks about quality, with one his many famous quotes stating that “it’s better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
The summer months are approaching and this often means a drop in trading volumes. Share prices have historically performed worse in the period May – October than they have in November – April, with the S&P averaging approximately 3% gains in the former and 7% in the latter.
This trend coined the phrase, “sell in May and don’t come back till St Leger’s day.” This year St Leger day is the 17th of September. The stock markets have become a lot more developed and complex since this “strategy” was suggested and with the current seemingly settled environment, owning good companies in good sectors, managed by good managers should serve you just fine over the next four and a half months.
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