Has there ever been a year when so many people have made so many short-term decisions with their investments?
I am sitting here writing this column on the day after Pfizer announced the successful stage-three testing of its Covid vaccine – an announcement that sent the stock market into an utter frenzy.
Hargreaves Lansdown, Fidelity and AJ Bell were just some of the investment supermarkets so swamped by trading (Hargreaves said it was its busiest ever), that their websites at times ground to a total standstill.
Never before have the results of one company had such a fundamental impact on stocks around the world.
Rolls-Royce climbed 50 per cent, IAG 36 per cent, SSP (the services group) was up 59 per cent, Carnival cruises 41 per cent, and Cineworld and Easyjet both up more than a third. Crackers.
Meanwhile, companies such as Ocado, Just Eat, Games Workshop and (in the US) Peloton all dropped heavily. Gold sunk too.
As AJ Bell fund manager Ryan Hughes said to me: “It is often hard to differentiate ‘professional’ from ‘amateur’ during serious volatility spikes.
“It’s the flipside of March when the market fell heavily. We’ve gone from ‘sell everything, the world is ending’ to ‘buy everything, we are back to normal’. Rational thought goes out of the window.”
Too right. It is a financial advisers’ job to help savers ignore this noise.
It is frankly ludicrous. Like many people, I was hugely encouraged by the Pfizer announcement, not least because of the hope that it gave for normal life to resume in the spring – but that does not mean I would ever reposition my whole retirement on the basis of one stock market update.
Is the value of Ocado as a long-term business really worth so much less based on the vaccine announcement?
Do we really think Rolls-Royce’s proper value could oscillate somewhere between 60 per cent and 100 per cent of its opening price that day? It is certainly optimism, but it is not reality. It is deranged.
In March I recall appealing for some sanity, and it usually does come in the form of good independent advisers who spend their time during volatile markets speaking on the phone, helping their clients steer clear of tinkering.
No one cares about earnings any more; all they care about is a vaccine and more quantitative easing.
The fact of the matter is that hysterical markets lead to increasingly hysterical decisions by investors who forget about what their longer-term objectives were.
Professional investors should know better, but routinely act like they do not and have forgotten all about the benefits of the long term.
Certainly monetary policy has created a massive gulf between value and growth investing, and QE has created an environment where returns defy ordinary valuations.
I cannot see this changing, because we have been talking about the unwinding of bond buying for some time now, and it shows no sign of stopping.
Advisers have to be the calm heads in this storm. They have to be the party-poopers with one eye on reality, the other on the future. Boring but safe – what a reputation to have.
As one day-trader who got in touch with me on Twitter said: “Get ready for the Dow to hit 40,000 and the FTSE to hit 8,000 by 2023. We have one of the biggest stock market bubbles ever coming.”
Normally I would call him deranged, but in this market he might just be right.
Greenwashing
Now, be honest, hands up. We are among friends here. Who else is getting a little fed up with Mark Carney’s rabbiting on about net zero targets and green investment?
It is a noble cause, but it was bad enough hearing it when he was Bank of England governor; now we have to put up with it when he has gone.
I think we all agree that much more needs to be done on climate change, and we definitely need to push the biggest companies in Britain to work harder to achieve this.
But some of these companies feel like they are just part of the exercise to greenwash their credentials.
Very soon we will achieve my great ambition: having no ESG funds at all.
But rather than my dream of it being because investment managers are fully accountable, it will be because they have all got a nice bit of paper signed by Mr Carney.
Predictions
A quick prediction for a Budget next year: the current stamp duty holiday will remain, but the current allowances on capital gains tax will be gone and aligned instead with income tax.
The latter one certainly looks out of kilter, particularly as those eminently sensible (yet often ignored) people at the Office for Tax Simplification now think some CGT rates should be raised.
That said, you will not see any Tory government ever try to raise revenue from the biggest tax break of all: the capital gains exemption on the main home.
That would be a step too far.
James Coney is money editor of The Times and The Sunday Times
