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.