The financial markets fluctuate between these poles. A year ago, the stock markets were still in the doldrums, but at the moment we are hearing more and more cheers.
Thanks to huge fiscal policy measures, an extremely loose monetary policy and progress with vaccinations, the economic outlook around the world is brightening. The International Monetary Fund is forecasting impressive growth of 6% for the global economy in 2021. It is expected to expand by a further 4.4% next year.
The stock markets have responded to this news with brilliant price gains. Various stock market barometers have recently set new records, including the SMI, the Dax and the leading US index, the S&P 500.
Investors are confident
If current surveys are to be believed, market participants are more confident than they have been for a long time. Whether professional or amateur, investors are optimistic about the prospects for equities. According to figures from the investment bank Bank of America, equity funds received a total of USD 576 billion in the last five months alone, more money than in the previous twelve years.
The flood of companies entering the trading floor and the speculation with cryptocurrencies is creating a certain euphoria. Online brokers are literally being overrun by private investors who now also want to trade. Of course, this is also reflected in the valuation: many shares are now being traded at impressive prices. No wonder, then, that more and more people are warning of a major correction.
Humility is appropriate
Should market participants now be worried and sell their shares? Apart from the fact that it is never advisable to simply throw your strategy overboard, a look at the past is enlightening.
In December 1996, then Federal Reserve Chairman Alan Greenspan warned against “irrational exuberance” on the stock markets. The reason for the warning was a study by economists John Campbell and Robert Shiller, which they had presented to the US Federal Reserve Board shortly beforehand. In it, they came to the conclusion that US equities were significantly overvalued.
Anyone who sold their shares in the face of this warning from a reputable source and hoped for a more favorable re-entry point was probably extremely annoyed. After all, the most popular index at the time, the Nasdaq Composite, was set to boom for another three years and quadruple in value.
Despite certain signs of exuberance, it is therefore important to keep a cool head. Of course, the stock markets could correct by 10 or 20% at any time – that is in the nature of things. Long-term investors should not be put off by such fluctuations.
Much more important than short-term timing, which nobody can manage perfectly on a regular basis anyway, is being invested. The long-term motto is not “timing the market”, but “time in the market”. Anyone who has been invested in the MSCI World over the past 50 years, for example, has achieved a total return of 2150%. Anyone who missed the ten best days – out of a total of 12,500 trading days – would have achieved only half as high a return of 1140%.
Those who implement their investment strategy in a disciplined manner and do not allow themselves to be infected by the prevailing mood need not worry about crash prophets or market criers. And in the event that things do get dicey on the markets, Point Capital has a sophisticated risk management system that can significantly reduce volatility in portfolios.
From Jules Kappeler
CEO of Point Capital Group
6. May 2021
