When a major global bank advises clients they should “sell everything” investors had better take notice. Or should they?
It’s January 2016, RBS advised it’s clients to brace for a “cataclysmic year” and that they should
“sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small”
The bank expected stocks to fall by 20%, with a deeper decline for the London stock market. The bank’s research chief for European economics and rates was convinced, “This is your number one theme for 2016, without any question in my mind”.
UBS quickly jumped on the bandwagon, and issued a “significant change” to it’s house view, saying policy chaos in China had unsettled markets. They went so far as to cut their stock market exposure from overweight to neutral on a, wait for it…”six-month tactical horizon”. They went underweight emerging markets.
Pessimists were warning that unless there was a batch of unquestionable good data over the coming months (remember, this is back in January 2016), the sell off could become self-fulfilling and quickly metamorphose into the next global crisis.
So let’s take a look at how your investments performed since.
Source: Thomson Reuters
- Blue line – London stock market: +1.24%
- Red line – International fixed interest: +2.22%
- Orange line – US stock market: +13.34%
- Green line – European stock market: +17.83%
- Purple line – Emerging markets (the asset class you were specifically advised to underweight): +25.70%
As tempting and enticing these splashy headlines can be, the reality is that it’s simply guessing. Making large bets like this on outcomes that are difficult to even place probabilities on, is simply speculation, it’s not investing.
Investors should focus on the things they can control. Having a game plan, maintaining diversification across stocks and bond, currencies and geographies, keeping costs low, and avoiding short-termism.
Wealth is created over long-periods of time. It requires discipline and patience – probably the two most common attributes of successful investors.
Don’t believe me, here’s more from an ex-finance journalist.