BLOG: Bear market blues – three strategies to cope when markets tank
Last month the FTSE 100 finally entered bear market territory, having collapsed over 20% from its peak last April.
Unfortunately, while its fall thus far has been painful enough for anyone who bought in near the 7,000 mark, there could be worse to come.
If you take the two previous bear markets between 2000-2003 and 2007-2009, once momentum switches to the downside it takes a long time for it to recover.
From a timing point of view, the average equity bear market has in fact lasted around 16 months from peak to trough, which would take us to September.
Of more concern than the length of the bear market is the scale of the falls.
If you look at the 2007-2009 bear market, for example, the FTSE 100 shed 48% in total.
The causes of one bear market are clearly different to the next, and investors should not merely rely on history to determine how and when the current downturn comes to an end.
But the inescapable fact is that sentiment has turned decidedly bearish, and bar a few sporadic rallies (all of which were common during previous downturns as well) it may be that markets can tumble quite a bit further.
So what should investors do? It is hard to sit on the sidelines forever when cash is earning so little, especially when bonds also yield such nominal amounts.
I for one have ploughed more money into stocks, specifically income funds, in the hope that their focus on solid dividend-payers will produce the goods over the long-term – and I do mean long-term as the two funds I added are core holdings.
But rather than take just my word for it, below three experts give their views on just how investors should be handling this current sell-off.
Rohan Sivajoti, advisory services director at eVestor
“Now is not the time for investors to take knee-jerk decisions with their financial futures. Investing is a long-term commitment and it’s important not to panic sell when markets are volatile.
“The FTSE 100’s recent falls have been driven by investors’ deep concern over the stability and strength of the global economy and the knock on effect this might have in the UK. During a period of falling inflation and low wages, the UK could find itself at particular risk of catching the economic epidemic that is spreading across the eurozone.
“It yet again highlights the importance of focusing on what you can control, such as costs and portfolio diversification, while remaining invested for the medium to long term.”
Giles Marriage, director of institutional sales at Thesis Asset Management
“There has certainly been a spike in volatility this year as fears over China accelerate, with 2016 seeing the worst start for global equities since 2000.
“The saying ‘So goes January, so goes the year’ is at the forefront of one’s mind, but on most measures, developed market equities seem reasonably priced relative to historic averages or sovereign bonds.
“We remain neutral on the asset class, but there are some excellent opportunities arising in unloved sectors currently, and as Warren Buffett once said, investors should buy from the fearful and sell to the greedy. Panic and run away we will not.”
Peter Lowman, CIO at Investment Quorum
“We always look at each client and ask three important questions. What is your time horizon, what is your risk appetite, and do you require income at the current time.
“Often a high percentage of the capital can be invested in equities for a total return and income distribution is not required for some years. Whilst we are believers of time spent invested in the markets, in times of high volatility, we drip feed money into selective positions, taking the opportunity to book cost average.
“Trying to determine the bottom is near on impossible, therefore, we are currently active but on a very selective basis. Panic in the markets has been a prominent feature over recent weeks and it would take a brave man to say the worst is over, but we remain advocates of global equities and are finding some good long term opportunities.
“We also think the UK, Europe and Japan look interesting. Much will depend on central bank policy over the coming months, but the markets are oversold so we are expecting a relief rally sometime soon.”