Richard Whitehall: It has been a difficult start to the year for investors. The only thing that seems to have risen consistently this year is the level of market noise.
At times of market stress investors are bombarded with conflicting advice. Doom-mongers forecast that the end of the bull-market is nigh and investors should sell risk assets indiscriminately. Whereas the bulls focus only the size of recent losses and bang the drum for being brave and buying anything that has fallen.
Long-term investors really need to step away from the noise and make more sensible decisions. For example, when might a potential buying opportunity actually be just noise? If we take the S&P 500 index as a proxy for the US equity market, we can see that from its lows in March 2009 to the end of 2015 the index had returned 183%.
So this year, it fell 7% – that’s a lot in a short space of time, but that meant that from those 2009 lows to the middle of February the market was still up 166%. So for the long term investor who had made a considered decision at the end of 2015 that the US market was expensive, then the 7% fall surely didn’t suddenly make it cheap and a great buying opportunity.
When I think of market noise I always think back to the Edgar Allan Poe quote: “Believe nothing you hear and only half of what you see”.