A Question of Confidence 📊

Unless you’ve been living under a rock, you’ll probably have heard a little something about the threat of a global pandemic, which is apparently imminent 😷 One, perhaps unexpected, impact of these sad events is that stock markets around the world have lost value.

Before we delve too deeply into the reasons why this has happened, it’s worth taking a moment to remember that stock markets will naturally fluctuate in value... all the time! Sometimes they go up. And sometimes, unfortunately like now, they go down 📉

But before we get too distraught, let’s put things back in perspective 🧘‍♀️ If markets fall, the prices relate to the exact same investments that they did previously, but now they just cost less.

So, assuming that any decline in stock price isn’t related to some newly discovered, inherent flaw with the business or sector etc. If you liked an investment at its previous price, then you should like it even more now it’s even cheaper 😍

In situations like this, the words of investment guru, Warren Buffet, come to mind; “Be greedy when others are fearful, and be fearful when others are greedy.” For those of you who are new to the world of investing… Warren was pretty hot on this stuff! Many of the principles he championed are explained in our recent post on investing for beginners.

Ok. That’s the theory! Let’s now take a look at the specifics of why the Coronavirus outbreak  has led to such a sharp decline in the value of global stock markets 🌐

Much of the entire global technology supply chain is reliant on one market, China. And in the case of e.g. Apple, so is ~15% of their total revenue (source: Benedict Evans’ newsletter).

With no reliable indication of when quarantines may be lifted and factories can reopen, this is leading to widespread uncertainty 🤷‍♀️ Analysts and traders are busily trying to calculate the link between supply chain disruption, consumer demand, and ultimately, profit margins 🧮

In short. The market is reacting to fears that the coronavirus will lead to a global economic slowdown. Let’s stop to think about that. What has caused these companies to command a lower value than they did a few months ago? Fear 😱

There’s nothing to indicate that these businesses are doomed in some way. What happened is that the market now predicts they will grow at a slower rate than some other, relative part of the economy 📊 And given that many factories are presently closed... it’s probably safe to say that this won’t be their most profitable quarter, so the overall assumption is perfectly reasonable.

That’s great insight if you’re a trader, trying to ‘beat’ the markets. But this mindset may not be especially helpful if we just want to grow our money for the long-term, at a faster rate than that of inflation 📈

When it comes to investing money, at Plum we think in decades, not days 📆 We’re focussed on how our investment funds perform over the next 5, 10, or even 15 years and beyond! We don’t consider ourselves to be a ‘trading’ platform, but more a way to invest consistently for the long-term ⏳ Generally, it's not about timing the market, but time in the market.

That may be an easy thing to say, but we know it’s significantly harder to stay strong when the value of your investments is being eroded, as is happening in many cases right now!

Ultimately though, everyone must decide for themselves what level of risk they deem to be acceptable, and there are many factors that need to be considered.

Your own assessment should take into account whether you feel that current market prices are a genuine reflection on the long-term potential of that specific investment, or whether it is being artificially lowered by fear, resulting from broader economic uncertainty 🤔

Whatever you decide, it’s important to remember that once you sell your investment, any loss is consolidated. So think carefully before committing to a knee-jerk reaction.

Remember, your capital is at risk if you choose to invest.

If you’d like to learn how Plum can help you invest then check out our website!

Plum is available via an app for iOS 🍏 or Android 🤖