Ahem ... I'm mortified. There was a hell of a lot to say that hadn't been said yet. Little did I know. And, if I may say so, little could I know. This pandemic goes far beyond anything we have seen after the advent of stock market historians.
So, what's to say now?
A cleverish adage has it that these are the four most expensive words in the financial markets: This time is different. Today, though, they certainly ring true. This is different from anything yours truly has ever experienced, and I'd be hard pressed to come up with anything remotely resembling this situation in the annals of stock market history.
So, while there is strong statistical evidence indicating that the market always bounces back after such steep declines, and strong a priori arguments for claiming that this is but logical, perhaps today is an exception for the history books?
To be sure: Things can get a whole lot worse. The partial lockdown of most developed economies certainly inflicts great economic damage to the world economy, and the massive stimulus packages are almost by definition insufficient to offset all damages, given changes in trade patterns and demand structures. Besides, they may take inordinately long time to work their way through the economy in a time of forced demand reduction. It's like trying to move a garden hose forward by pushing the rear end. You need a bit more water pressure to make it work.
In my view, what happens the next few weeks is anybody's guess. In the absence of a functioning crystal ball, then, we have to rely on strategic arguments. For starters, what's risk? In times of greed, it may feel like losing out on gains you could have made. In reality, it's tilting your decision tree too far in the direction of, well, irrational exuberance. In times of extreme fear, it's relying excessively on worst case scenarios, mirror-imaging the greed case.
Is this time truly different? Can you trust your instincts if they tell you that this time, as a kind of historical singularity, the markets will not bounce back?
I can only speak for myself: That's a risk I'm not prepared to take. I'm certainly open to the possibility that I might lose part of the money that I just invested in a couple of stock funds. Fast forward a few years, though, and this conclusion gets steadily less likely.
You're probably used to reading about these four expensive words – this time is different – when the market sentiment is more upbeat. But, honestly, what's the better description:
a) Investors are now too optimistic.
b) Investors are now too pessimistic.
Your call.
Finn Øystein Bergh
Chief Economist & Strategist
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.