Positive in sombre times

Simon Read

Simon Read

The coronavirus-led stock market turmoil is likely to be with us for some time, but I have noticed something really quite positive coming out of it.

Those as long in the tooth as me will remember previous market crashes. You will recall that markets have always bounced back on other occasions, although not always that quickly.

In fact the long, slow 50 per cent fall in the FTSE 100 that began on December 31 1999 lasted 1,167 days.

The market did not recover from the collapse that followed the investment madness of the first internet boom until March 2003.

I can remember investing in the middle of 2000 when I thought that markets had hit bottom and it was a buying opportunity. How wrong I was. I hung on to my funds for years, hoping to eventually make a profit. 

I never did because of the high fund management charges back then. It meant that even after the FTSE recovered to the level I had bought in at – which took around seven years – my funds were still around 40 per cent down.

That was simply because I had been charged 5 per cent every year.

Do not get me wrong, I am not complaining. I knew the risks and had only invested cash I had to spare. It meant I was happy to sit things out for the ride.

But I knew plenty of other people who got caught up in the stock market fever at the end of the 1990s. Many took risks they could not afford and ended up suffering losses that put them into financial difficulties.

I can still hear the voice of one friend telling me: “I need the money but I can’t afford to sell when the market is so low.”

He asked: “When will it recover so I can get my money back?”

I could not tell him when it would recover, although I had no idea it would take seven long years to reach the same level. But I could tell him that his money was gone. He had exchanged it for some shares, which were now worth a lot less.

Their actual value was not what he had paid for them, but how much someone was prepared to pay him for them.

“But that’s not fair,” he said. It is fair, and it is the basis for all trades and markets.

If you buy something to sell, you have to accept that there is a risk of not being able to find a buyer at the price you want. I tried to explain that to him but he did not really get it. He sold and vowed to stay away from stock markets.

I suspect he was not the only person who got burned back then who swore off investments. And that was a big shame. Seasoned investors expect the occasional knock-back.