In this Money & Mischief blog Steven Rowe weaves together global economic protectionism, the World Championship of Snooker and life’s journey. Impossible! I hear you exclaim. Well continue reading...
April kicked off with a Trumpian Game show on the 2nd of April, where The Donald announced in front of the White House using a board from a breakfast TV show game that he would be applying tariffs to imports into the USA at varying rates.
Cue, massive stock market declines, investors reeled at the possibility of reducing profits of companies and therefore potential future lower earnings. And so, inevitably, that panic about an unknown future led to immediate reductions in stock markets as people sold.
Efficient Market Hypotheses – A theory that states asset prices reflect all known information
For the people selling, there must have been a buyer. What did the buyers of those shares at the time know, that the seller didn’t? As with any prediction of the future, it’s all based on opinion as the future is unwritten. And so, the market gyrated.
Meanwhile, the intelligent CEO’s and other management of the massive companies in the world thought about what they would do in reaction. They didn’t think ‘oh well, the USA is applying tariffs, we will just make less money.’ They thought, right, we can’t control that, what can we do to make our company profitable in other ways?’
And so, the endless reaction to events that inevitably takes place did. For example, being based in Solihull, we reviewed what Land Rover’s reaction to these tariffs was. Within a day or two, they announced they would halt exports of their vehicles to America for the time being. It takes 2 months to get them sailed over the Atlantic and they didn’t want them landing when tariffs applied. They already have some stock in America and didn’t know how long that would take to sell. So, they acted. In the same ways every other business in the world started to look at what they could do.
‘Everyone has a Papa’
The film ‘Munich’ spoken by Papa, played by Michael Lonsdale
I often quote ‘everyone has a Papa’ as it sums up how everyone, even the most powerful and wealthiest people or institutions have someone or something that has some kind of control over them.
Companies were not the only economic powerhouses to react. Countries did too and bond markets. A week or so into the announcement Trump announced on ‘Truth Social’ that ‘now was a good time to buy stocks’ following the falls in value and then announced a 90 day cessation of the tariffs. What prompted this? Was it a change of heart? Was it because he has done what he was trying to achieve (whatever that was!) or was it something else? In the preceding 24 hours there was a massive sell off of US Government debt which if it continued would mean a reaction in US interest rates would have to occur and cost the US billions in additional debt financing payments. As a country the US owes $36.22 Trillion (US treasury Data). Which, for students of large numbers if a lifetime’s worth of pocket money. If the owners of that debt sell it off, then the price will fall (less demand lowers prices) and thus the yield (the interest rate rises) and so when the US needs to refinance that debt, they would have to pay a lot higher interest rate to borrow. Which would cost a fortune and wipe out the effect of any money they would expect to raise in tariffs. It’s similar and on a much larger scale to what happens to UK debt that ended up ousting Liz Truss from office. Did China, one of the top holders of US Debt, provoke or encourage the sell off, or was it just a wider reaction from bond holders in general? I am sure this will come out over time. All we now know is that, it appears, the bond market is the ‘Papa’.
And so that game show has maybe come to an end but is certainly on pause. What felt like a large drop in markets actually only wiped out 12 months of gain (the below is the portfolio most affected by this, the World Tracker 100% equity portfolio. Less than 10% of our clients are invested in this)
But if we zoom out further, then we can see what a tiny blip this was and how if you stick at it, you will eventually see markets recover.
It’s only a game so, put up a real good fight – Theme tune to Big Break (for international readers, this was a game show in the UK in early 1990s based on Snooker)
So, what was the fight Lucent Financial Planning put up to America’s game? Well, presciently, we put on our investment seminar on 1st of May called ‘Flight Risk’.
In this immersive experience we sneakily hid important investment messages amongst a fun experience, as one client, Mike, said:
“Thanks for putting on the show last night - didn't really know what to expect and thought it might be light on content. Needn't have worried!”
In it, we put on a show based in an airplane flight and travel to Happy Island. There was investment turbulence along the way and our cabin crew served up a flight safety card detailing what to do in stock market falls and how to react.
To stow away emotional baggage that affects your decision making with investments and then went on to learn from the research of 5 Nobel Prize winners for finance economics about:
- Modern Portfolio Theory – Diversify your investments to reduce risk you don’t get paid for
- Efficient Market Hypothesis – All known information is reflected in the price of a stock. It is the most accurate price available and is hard to spot mistakes in it. Don’t try to beat the market, be the market.
- Small Companies – if you received the same return from a mega massive company as you did in a small company, no one would ever invest in a small company! Therefore, the smaller company has to offer higher returns to attract investment. This makes sense logically and is reflected in decades of data.
Our ethos was reflected entirely in that event. Deep understanding of long-term investment analysis by the best minds in the world, conveyed in a lighthearted and fun way, so you can stay awake to understand it all!
Life is a game and not reacting to stock market declines is the fight we are taking to task, every day we turn up to work. We are trying to educate you all to make the best decisions when panic sets in globally or just in your household! We want you to sit back and relax and enjoy the flight and trust us to put on the game show and fight your fight for you. If, like 100% of our clients, you did not sell out at that time, then you made the correct move…. Again!
It seems that round is over, until the next one…
Currently the world Championship of snooker is going on. Some of our clients, Fran, and Jeff, have been to the Crucible in Sheffield to watch if for a couple of days and listen to the sweet nothings of John Virgo on their earpiece. I am thinking of distributing earpieces for all readers, to wear in bed at night, when stock market volatility is at higher levels to stop you worrying. They are called ‘Whispering Stevie’ after the great ‘Whispering Ted Lowe’ the snooker commentator. I will gently whisper you to sleep talking of long-term expectations, how your reaction to volatility will directly affect the level of return you receive and boring you to sleep by reading out statistics over the past 100 years. Year by year by painful year until you nod off!
Fran was sad to see Mark Selby be beaten as she is somewhat infatuated with him. In the Semifinals are Ronnie O'Sullivan and Mark Williams. They are from the ‘Class of 92’ aged about 50 and are still going strong. You could say they are the large companies of the snooker world. Their winnings (profits) are more consistent, and they still have a bit of magic in them. You know what you are going to get. The other semifinalists are Judd Trump (35) and Zhao Zintong (aged 28). Zhao, the young whippsnapper from China represents fast small and up and coming companies from ‘emerging markets.’ Who knows who will win? No one yet… but by the time you read this, the match will have been played. If we back everything as we promote in the stock market, you can sit back, enjoy the game, delight in the whispering and have a lovely time.
For when all is said and done, the gyrations of the stock market will enhance you financially but should certainly not affect your mood. Sit back, relax and enjoy this journey. One of our clients died this month, he was a lovely man aged 95 that enjoyed a jelly baby or two every day and we will miss him and his outlook. Rest in peace mate.
