January 1984 – January 2019

2018 was the fourth worst performing FTSE 100 year since its launch 35 years ago in January 1984 (valued at 1000). However, in better news, only in 2000, 2001 and 2002 did we see ever see consecutive negative return years. But if the FTSE repeats that sequence then not such good news – those three down years in a row resulting in approximately a 45% loss.

Last year saw the US equity market experience its worst Christmas Eve on record and its worst December since 1963 with the index down 9.2% for the month.

Reading market commentary, blame is attributed to an expected sharp slowdown in the US (and by association) the world economy and/or President Trump's erratic behaviour, the China – USA trade wars, the end of ‘cheap money’ (pending interest rate rises) and here in the UK, BREXIT of course.

Volatility has increased dramatically as average holding times of stocks plummets. Average holding periods of shares have dropped from around 10 years to under 6 months according to research. The long-term principles of buying and holding stocks and picking up dividends seems to be replaced by algorithms and day-traders. This is despite the warnings on these types of websites - to quote one of the larger players: “Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading with this provider.”

We think this downturn / correction has been overdue for a while, we had positioned client portfolios more cautiously than normal which offset plenty of these losses. However, this had slightly hampered growth over the last couple of years and reinforced the ‘you can’t time the markets’ mantra, however we felt it prudent not to expose money (in particular that from final salary pensions) to the possibility of large losses in the very early stages of client engagement. Not so much because the rationale of the portfolios couldn’t recover – after all pensions are a 30+ year investment, but more as to not knock the confidence of our clients. One of the biggest detractors from most portfolios is the Behavioural Finance element – the inbuilt response for many to want to sell the stock market when low (out of panic) and buy again on a rally (out of fear of missing out). In every other walk of life this is clearly a bad tactic that we would all avoid, but the intangible nature of dealing with money and assets on a computer screen complicates everything. Ignoring the noise and looking to benefit from the irrationality of others is a tough skill to master, after all even investment managers are human. Well, partly human, partly nerd. These drops have given us opportunities to pick up some of the targeted assets at a discount to previous valuations, helping one of the big aims for most portfolios, for the natural yield to match the required income leaving the unit growth to pay for running costs, inflation and increases to those annual incomes (and hopefully much more)

So we are quietly confident of being able to handle what is coming next, it won’t be easy, a case of buckling the seatbelts tight and holding nerve, but we’ve seen worse (most recently in 2008) and I’d wager we will see worse again in the next 30-40 years.

The FTSE 100 was launched on 3rdJanuary 1984, with a base value of 1000.

  1. Only 28 of the original 100 companies currently remain listed on the FTSE 100.

  2. The UK number 1 was ‘Only You’ by the Flying Pickets and we were about to bit hit by a big hurricane.

  3. Apple (Macintosh) launched their first personal computer.

  4. Nissan signed a deal to become the UK’s first foreign car manufacturer, swiftly followed by the news that the Triumph marque was ending.

  5. In March 1984, our PM Margaret Thatcher fell out with the EEC. Arguing about the UK rebate and she threatened to veto any of their spending plans until resolved.

  6. British unemployment was at an all-time high at around 12%, with youth unemployment being a real issue at around 1/3 of the jobless numbers.

  7. GCSE exams came in to replace ‘O’ levels.

  8. Prince Harry is born but we lost Tommy Cooper and Eric Morecambe.

  9. BT shares go on sale as the biggest ever share issue in history.

  10. Inflation was 5% (then classed as low).

  11. Lending money to the US government for 30 years would have paid a return of 11.5% per annum

  12. Ethiopian famine news led to Band Aid becoming Christmas number one at the close of the year.

We have many connections between 2018 and the events of 1984.

  1. Latest additions to the index are Ocado, GVC Holdings. Rightmove, Wood Group, replacing names such as Royal Mail, Sky, Old Mutual, Hammerson (property company that owns West Quay in Southampton), G4S.

  2. I haven’t really known a number one record since about 1988, the year music died…I’m guessing it’s an X-Factor / The Voice / Pop Idol type thing? But we did have a very cold and snowy start to the year

  3. Apple entered ‘Bear’ territory in 2018, wiping off around $300bn dollars of its highest value . In fact, the FAANG stocks lost around $1tn in value from their peaks of 2018 to close of year.

  4. Fresh concerns have been raised over the future of Sunderland’s Nissan factory after the company’s CEO said he is “in the dark” over Brexit. Carlos Ghosn, who is chief executive said that the uncertainty surrounding Brexit left him unable to make long-term decisions about Nissan’s UK operations

  5. B-day, 29thMarch 2019 (at the latest)

  6. UK unemployment is at 4.1%, lower than at any time since early 1975, youth unemployment though is around 11%, but much lower than EU average of over 15%

  7. GCSE scores were changed from A-E to 9-1 last year

  8. Prince Louis born (5thin line to the throne – Harry was 5thbefore), but we lost Ken Dodd and a Chuckle Brother

  9. BT share price dropped around 13%, recovering from being 25% down at one point in 2018.

  10. Inflation ended at around 2.2% (now classed as slightly above Bank of England target)

  11. Lending money to the US government for 30 years would have paid a return of 3.02% per annum

Kevin Forbes,

Founder, Strategic Solutions

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