There is a lot going on in the world at the moment. Inflation is out of control. Central banks are raising interest rates to try to combat it. This will reduce spending and growth, leading almost certainly to a recession. China is in lockdown again so the supply chain is impacted again. And there has been a war in Ukraine for the last 3 months. This is all having an impact on the markets, which are understandably down. Some investors are getting nervous, wondering should they get out while the markets are falling. They can always get back in when things improve. But it’s not that easy.
To start, we can all admit that we cannot predict the future. We do not know for certainty that there will be recession. If there is, how bad it will be and for how long it will last. And this is for something that we can see coming! Most of the time, the big crashes are for events we didn’t know about.
So if we can’t predict the future, when do we know is the right time to get back in? It’s not that easy. Let’s look at the dotcom crash that happened around 2000. The global stock market lost -56.53% of its value over 2 1/2 years. But it wasn’t a straight fall.
The initial fall started on 19 September 2000 and the market fell by -27.92% over the next 6.5 months. Over the next 7 weeks we saw a recovery of 16.9%. 7 weeks is a long enough time in the markets, surely we are on the up now, time to get back in? Wrong!
Over the next 4 months, markets fell another -29.17%. We then saw another recovery over the next 2.5 months. Although not without its ups and downs, we did see the market grow by 21.35% in just a short period of time. We had a bit more of a rocky period over the next 3 months but markets were up 7.1%. We’ve been through the worst of it. It must be time to get back in now. Wrong!
In the next 4 months, markets lost an incredible -33.77% in value. We are now in July 2002, well after the initial market crash and after the September 11 attacks. Yet the markets are still tanking. Still, the next month was positive with markets growing by 17.15%. That last fall really shook me. I’m not sure what I should do anymore.
You are right to be confused because markets took another hit, falling further, this time by -18.38% over the next 6 weeks. By the way, if you had invested €1,000 in September 2000 and stayed in the market, it would be worth €491 at this point. When markets recovered 13.35%, we had surely reached the end. Markets couldn’t fall any further could they?
Yes they could!! From November 2002 to March 2003, we saw a further fall of 17.63% in the markets, hitting the bottom on 6 March 2003. At this point, you’d have no idea what was a false flag and what was real. Was there going to be a clear signal that the markets have recovered? No there wasn’t. And there wasn’t a clear signal that we hit the bottom either. The stock market recovered gradually but volatility remained with markets rising and falling. There wasn’t a clear double digit rise until April 2005 when over a 5 month period, the market rose by 19.90%. But the market had risen by 60.19% since hitting the bottom and you had missed all that growth in the meantime.
It’s not that easy to know when to get back into the market. Just tell me when?
Steven Barrett
06 June 2022