the ten year wall of worry.

19th September 2018

I am always bemused by negative media headlines and over the past month these have been grabbed by both the 10 year anniversary of Lehman Brothers’ collapse (the fallout and chaos from the bank’s bankruptcy turned a credit crunch into a global financial crisis) and the length of the current equity bull market (as it has just become the longest ever at 9 and a half years), which has resulted in journalists predicting the next financial crisis and equity market crash.

While I will always remember the collapse of Lehman Brothers (the shock and sheer magnitude and scope of the crisis was frightening and made it feel like it was the end of the world), I learnt that governments and central bankers will do whatever it takes to save the financial system from collapse (which it undoubtedly would have done without their intervention).

However, I believe that one of the main after effects of the global financial crisis a decade ago is that equity markets now have a tendency to react disproportionately to any uncertainty or disappointment. Recent examples include the initial reaction to the Brexit vote in June 2016; the election of Donald Trump in November 2016; the unsuccessful Italian constitutional referendum in December 2016; and North Korea’s missile tests over Japan in August 2017. However, all these uncertainties turned out to matter very little and equity markets quickly recovered.

This has taught me not to panic no matter how bad things initially look, especially as diversification and risk management form the cornerstone of my investment philosophy and portfolio strategy.

Furthermore, while this may be the equity market’s longest ever rally without a fall of more than 20%, I believe that it has also been the most hated equity bull market ever. As for the doom-mongers, just because this is the longest ever bull market, doesn’t mean that it isn’t sustainable. I don’t currently see any equity market bubbles – in fact there is very little euphoria in the market, period. Consequently, there is nothing to suggest to me that it will end any time soon and as such I see no reason why equity markets can’t continue to climb.

Ian Copelin, Investment Director