So we’re just getting over the worldwide stock market slump, which saw the FTSE 100 lose nearly 7% of its value in the first 12 days of October.
Then, after a week of calm, we’re now subjected to headlines proclaiming “FTSE 100 slides to seven-month low,” and telling of £240bn being wiped off the value of Footsie stocks since May.
But was everyone shouting about the hundreds of billion previously added to the Footsie to get it up to those record levels? No, because it’s scare headlines that attract eyeballs, and nobody wants to read “Everything is just fine” stories.
Gone where?
A friend once asked me where all the money has gone whenever we hear of how much has been wiped off the stock market. But very little has actually gone anywhere.
The £240bn “gone since May” is simply the difference between the cash that would have been raised had every share in every company on the FTSE 100 been sold at May’s prices, and the amount the same theoretical exercise would raise today.
But only a small proportion of the entire FTSE has actually been bought and sold. And of those who sold, many will have been holding for a lot longer, and will have made nice long-term profits, regardless of the latest “seven-month low“, or whatever.
No losses
It’s often said that until you actually sell your shares, you haven’t gained or lost a penny (except for any dividends you’ve earned). That’s true, and bearing it in mind can help you avoid the worries about short-term price falls. Just don’t take it as literally as someone I once knew did.
On the grounds that he hadn’t made a gain or loss until he sold, he never sold losing shares and only ever sold winning ones. And as he only accounted for profit and loss when he sold, he always reckoned he was nicely ahead, while slowly accumulating a pile of worthless dross in his portfolio.
Why the fall?
Among other reasons, pundits seem to be putting it down to global political and economic uncertainty. The threat of a global trade war has been raised by a number of commentators, and the daily-claimed reversals on Brexit negotiations are being touted as a big worry, too… I read a headline yesterday that said a Brexit deal is 95% done, and today a rebuttal claiming it’s 0% done.
The murder of Jamal Khashoggi at a Saudi consulate in Turkey is one of the latest market-shaking events, though can you really see governments and defence firms shunning billions in arms profits for moral reasons?
Oh, and a budget dispute between Italy and the rest of the EU is also raising its head this week.
So what’s new?
But here’s a question. Can you ever remember a time when the world wasn’t awash with political and economic uncertainty? It’s certainly never happened in my lifetime.
The 20th century encompassed two world wars, the great crash of 1929, the 1970s oil crisis, the Cold War, and plenty more. But shares in the world’s major stockmarkets still wiped the floor with other forms of investment.
I reckon we should welcome short-term downturns, and use the opportunities to buy great shares at even better prices.
