Stock and currency markets performance
So June has come and gone, we are halfway through 2022, a year which has provided its fair share of difficulties in the investment world – perhaps an understatement, raw data being:
And on the currencies, with the USD being the go to in uncertain times, another strong month for the greenback …
Despite China posting its best monthly return for two years due to easing of lockdowns and relaxing the crackdown on the tech sector, other developed markets had a very different outcome.
The S&P 500 posted its worst June since 2008 and the performance year to date for a half year is the worst since 1970, so over 50 years.
Which Bear Market?
The bear market we are in at the moment is a cyclical one based on economic factors such as inflation, and a long bull market which created over priced equities especially in certain sectors such as technology.
External factors such as the pandemic and the war between Russia and Ukraine are having an impact but it’s more about being cyclical.
A cyclical bear market is one of three, and in the middle as far as its severity goes. We are not in a situation like 2008 where there are systemic failings – this of course is the worst of the three. The most unlucky of investors who bought the S&P 500 at its peak in November 2007 would have had to wait until January 2013 to have broken even on their capital.
However, by dollar cost averaging and buying in again at the same amount at the bottom in February 2009, the same investor would only have had to wait until April 2010 to break even.
The best of the three types of bear markets are those caused by an event such as in March 2020 when Covid 19 first reared its ugly head. Flash crashes. Despite seeing over a 30% drop, investors had to wait only four months to see their money back.
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So how do we manage our current situation?
Investment managers always talk about the longer term approach and the buying opportunities which exist when the prices are low, such as the current bear market.
Whilst that reigns true when it comes to the stock market philosophies laid down by our greatest investors of all time – Munger, Buffet, Lynch et al – it also serves our interest to say that. A client looking at your portfolio month on month and seeing 5%, 10%, or 15% of its value falling, many ask but how long will it take to get these losses back and will it be in time for when I need it?
A look back to the aforementioned 1970, during the second half of that year, the market was up 27%. If we get a similar bounce then today does provide great value.
Owning a wider suite of assets, some of which have zero stock market correlation is important at this tim, looking further afield from the usual go to such as Gold which is down 0.4% this year is important.
There are private businesses out there which offer investment and a sound analysis of these types of businesses can pay 10 -12% income per annum without any stock market risk. As always the assets you hold need to suit your needs, timeframe and risk profile.
But within the stock market, income is still possible. Dividend Aristocrats is a term given to a group of companies who have increased their dividend year on year for at least the last 25 years.
Many household names such as Proctor and Gamble, Coca Cola and McDonalds fall into this category. All three of these consumer giants have paid more to their shareholders year on year for the last 66, 60 & 45 years respectively.
So buying these businesses to guarantee an income that will eventually get you capital growth is a feasible solution.
These yields range from 2.5% – 3%. In normal circumstances not a lot to get excited about, but we are now not in normal circumstances.