IN 2016 I struggled to type the ‘B’ word – Brexit. Then it became the “C” word Covid and I almost thought I was going to have the “D” word Donald! I would have learned Mandarin after that.
It’s been four years of dripping psychological torture, but the stock markets don’t seem to bother, apart from the UK domestic market as highlighted last week.
I had seen many columns talking about the performance of the UK market but referring to the FTSE 100.
The FTSE100 is a heavily weighted international stock market and reflects the UK economy as much as the personality of a UK politician reflects anyone I know sitting at the bar concerned about the welfare of their families. The FTSE 250 and 350 is a better measure.
We were led to believe that the UK elections would bring certainty, that the avoidance of an ‘far left’ government, along with the clarity of Brexit, would steal the above national actions.
In fact, GDP (a measure of the economy) fell 20 percent compared to an average of 12 percent in Europe. The markets, too, diverged, particularly from May when the rest of the world turned on and the UK pulled back.
As I explained last week, this is largely due to the handling of Covid and the complete lack of clarity of Brexit.
A new word was introduced to me during the lockdown: “ Caetextia ” – context blindness, caused by an inability to keep track of multiple interconnect variables and to re-prioritize any changes in those variables by se referring to a larger field which contains its history. .
It seems to me to be a powerful pandemic that has crippled society and its thinking, creating an extraordinary confirmation bias. Visit any debate on social media to witness it firsthand.
The result is that society can resort to either straight-line logical thinking or random association thinking.
Such thinking leads us to sell the wrong stocks at the wrong time and vice versa.
Likewise, why is the share price of a global cinema chain rising more than 100% due to a poorly tested vaccine, even though that chain is considering a corporate voluntary deal and closures? movie theaters? Maybe they know different?
The UK profited significantly from this news last week and such a suppressed stock market (think a rubber band pulled down) is seen as one area that would benefit more than most, if there were a decrease in the threat of the virus.
Remember this is a country that saw net outflows of invested funds in its markets of £ 1.1bn and £ 912m in June and July of this year.
I have already mentioned the difference between the best investment performance of the global manager per £ 100,000 invested since 2000. One has lost almost £ 5,000 and the other has brought in over a million. £.
How can it be so?
Know that not all managers are dynamic and quickly move their allocation between different sectors. Some not at all.
In fact, in many old-fashioned pension schemes the old asset allocation still applies, with large UK holdings of over 50 percent still evident.
It seems odd when you see that the world index only allocates 3.45 percent to the UK.
Preparing for what this last step can do for your investments is everything, and you need to make sure your fund manager is well equipped for it.
For UK stocks, the worst-case scenario is a breach of World Trade Organization rules with tariffs and trade barriers. It would be horrible for the UK so you can see why the UK market is evaluating some of that possibility.
Half of the UK’s imports in 2019 came from the EU and 40% of its exports went there.
Queues at the border, high friction trade! It’s hard to see why a politician would allow it, but see my point above regarding Caetextia.
The key is the speed of movement and the balance of your portfolio, and the best managers do it well. Make sure you are positioned accordingly.
Peter McGahan is CEO of independent financial advisor Worldwide Financial Planning, which is authorized and regulated by the Financial Conduct Authority. For a free consultation on your investments, call Darren McKeever on 028 6863 2692, email [email protected] or visit www.wwfp.net.