Speaking of Recessions

Recently, a frequently asked question by friends and family is: “What do you think about the impending recession and its effects on the markets?”

My answer of “Great!” is an answer that has surprised many.

We frequently meet with clients, investors and friends who have formed an opinion of what is going on, after listening and reading to a plethora of financial reports and news. A person we met recently was absolutely dead sure that a recession was on the cards due to inflation, high prices, and hawkish central banks, amongst other factors. The afore-mentioned person decided to sell everything and go to cash in June - at the worst possible time, locking in losses and missing out on one of the best months in markets in July. As legendary investor Peter Lynch once said; “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”

Dimensional Fund Advisors

The idea that markets are forward looking is not intuitive to most people. The price of the stocks, bonds and other asset classes you see or read about today is the collection of the expectations of all investors around the world — some with 1 day horizons, others with 6 month horizons, and some with 10 year investment timeframes. The predictions of whether stocks are going up, down, or sideways, are all reflected in the prices.

So now, back to the answer of why are recessions “great”. Looking at the past 15 such events since 1926, investing at the seemingly worst time, the start of a recession, yielded a positive return in 11 out of 15 past recessions after 24 months.

Markets had already declined in advance of the bad news; for instance up to 12 months before the start of a recession. Once the recession (or slow growth) starts, prices of stocks and bonds are already on the move; anticipating and looking forward to the next event — which is the eventual recovery. As such, unless there was a very severe downturn which lasted for a very long time, the large majority (73%) was that markets ended up positive 24 months after a recession.

The following questions may be on your mind:

·  How concerned should I be about the markets for the rest of the year?

·      Should I go to cash and reinvest as things continue to look quite bleak?

·      How long is this market correction expected to last?

·      Is my portfolio built to withstand a downturn?

If you are concerned or have queries, please do not hesitate to reach out to us for a review meeting.

Due to the unique market conditions that we are in, we have specially dedicated a team to address such concerns. Click here to schedule a 30-minute pre-discovery sessions where we can have a chat with you to understand and better assess if we are able to add value to you.