Is it a ‘bear (or temporary) market rally’? Whilst apparently the majority of fund managers think it is, I sense this time they may be wrong. Of course, that does mean too they have built-up their cash reserves so at some point they will be reinvesting that and chasing things higher.
In the meantime, Hargreaves Lansdown and other platforms and advisers are reporting record flows of new money from clients. HL took in £4billion alone in the first four months of 2020 though some of this will be misdirected into Cash Funds and so on it is suspected. Clients’ total accounts sported 17% in cash in fact. Private investors can be very canny but also they can become carried away and help fuel spikes in prices and also select very speculative stocks for nice sounding reasons but which are not really the thing to buy – for example, using pins to pick which bio-tech firm is going to be the one to find the vaccine or ‘what about buying ‘Zoom’ as everyone is using it – just be wary is all I say as that boat has probably already sailed and as a company it may not be around in a few years as time marches on.
People can also do silly things because they look at how their investments have fallen in value. They can be prone to juicy-sounding scams for example. And no, TV personalities are not encouraging you to buy cryptocurrency, whatever the scam ads are pretending!
Then what about house prices – where for them afterwards? I’d not be in a hurry to buy at the moment and if you are a seller, take the cash quick. Yes, there could be a temporary exodus from high population areas but otherwise if the economy settles at a lower level then that will reverberate across the housing market too in terms of affordability and servicing of mortgage debt, however cheap the payments.
And as an investment manager ourselves, what are we doing? Of course, we are reassessing what we have and what we shall buy. We are not going to hold the same stuff ‘just because’ but also we are not going to do a Warren Buffett and dump stuff which has been hit hard as a consequence of Covid19 at a big loss, as then there is no way back – it is too late selling things when the worst has already happened. However, that may take courage and much patience and we have to be ready to demonstrate both. We shall also rely heavily on wide diversity to protect us and also to present the most opportunities and as ever, effectively it doesn’t cost our clients any more – just us and more work and hassle too but that’s what we believe is wise. Indeed, just imagine if you had half of your money in Woodford Funds for example – ouch! Please remember, spread your eggs around very widely.