Was Monday 5th the day it all went wrong?

Having dropped back a bit at the end of the previous week, stockmarkets on Monday 5th August dropped sharply, with some such as the Nikkei 225 market for Japanese shares showing properties akin to a stone being kicked off a bridge.

As the posts on social media became increasingly frantic (“…. the only question remains, how far will it spread …” “…. it is retail investors who are going to be routed.”) I thought that as things seem to have calmed down a bit it would be good to sit back and remember some of the basic principles of sensible, long term, evidence based investing:

• stockmarkets falling is an example of volatility but does not mean that you have lost anything;
• you lose money when you sell an investment not just because the face value has dropped temporarily, no matter how much it may have dropped;
• volatility is an integral part of investing and isn’t inherently bad;
• too much or unexpected volatility can be bad because it can drive poor behaviours, such as panicking and selling;
• however, without volatility there would be no growth – if it can’t go down it won’t go up;
• it is natural to feel uncertain when investments drop and especially if there are people around you telling you things are bad; everyone else will be feeling like this so don’t worry that you do;
• no, you didn’t see this coming, no you are not expected to see it coming, and don’t worry because nobody else did;
• this is one of the reasons why you diversify your investments and, having done so, you don’t spend all your time tinkering with them to try and get a short term gain, since the likelihood is that what you actually get is long term pain;
• where things go next, whether this is the start of a longer term drop or just a bit of passing volatility nobody knows; there are lots of people around who will tell you they do, but they’re guessing just as much as you are;
• stockmarkets look very different if you look at what happens over a week than if you look at what happens over five years so try not to spend your time looking at your investment values;
• go out and find something more fun to do with your time;

 (source FT Online S&P 500 07/08/2024)