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Kempen's Commentary: Faster and faster

03 April 2020

 

Faster and faster

As an asset management company, we closely monitor developments in the financial markets. We also keep an eye on all the news that may affect the value development of investments. It’s logical, therefore, that in these turbulent times we try to make comparisons with past crises: the financial crisis of 2008 and 2009, the dot-com bubble of 2000 and even the economic depression of the 1930s.

We know that in all of these crises, it has been prudent to increase the portfolio’s risk at the depth of the crisis. In the end, prices always recovered. That is why we focus on the differences between the current corona crisis and the previous crises; will the lessons from the past apply again this time?

What is clearly different this time, is the sheer pace at which the crisis has emerged. Sadly, all kinds of speed records have been broken: the fastest 30% decline in the stock markets ever1, the fastest (and biggest) central bank policies, the fastest decline in economic growth, the biggest drop in oil prices (since 1991). What really shocked me was the fastest rise in unemployment rates ever in the United States. As many as 10 million people lost their jobs in two weeks2. And this is probably a significant underestimate as the authorities could not process all unemployment claims in such short time.

Maybe it’s the high speed spreading of information (and non-information) through the internet, maybe it’s because this virus is rapidly infecting a world in which the mobility of people and goods has never been greater, but the pace at which these developments take place leads to an unprecedented uncertainty. 

However, we believe that the classic advice for investors still remains valid. Since 1999, the average fall in the global stock index within one calendar year has been 15%. Yet, in almost three-quarters of the years the index eventually ended higher, resulting in a total return of 215% over this period3. However, an investor who missed the best ten days of this 20-year period achieved a return that was less than half. This underlines the importance of a long-term vision. For long-term investors, it pays to stick to the strategy. And to take some extra risk in the darkest moments, when risk compensation is the highest.


 

1. MSCI World Index
2. US Department of Labor
3. MSCI World Index
 

The author

Michel Iglesias del Sol

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