A number of clients have contacted us recently concerned that the value of their investments and pensions have fallen quite a lot over the last six months or so and they have asked us for advice on what to do about it.
Those of you who remember watching Dad’s Army will recall Lance Corporal Jones’ famous line to Captain Mainwaring “Don’t panic” when the only person panicking was Jones himself! Captain Mainwaring, on the other hand, was a much calmer personality. I suspect Mainwaring would have been a better investor than Jones who would be more likely to sell his investments as soon as they had fallen in value. I suspect Mainwaring would have been patient, ridden out the storm and then waited for prices to rise above the level they were before the crash. Being a bank manager he would have had the financial acumen too which the simple butcher, Jones, lacked.
There have been a number of reasons for global stock markets to fall over the last six months such as the war in Ukraine, the cost of living crisis, supply chain challenges, increased energy prices etc. However, what has affected our clients most of all has been a less well-known event – the NASDAQ stock market crash in the US.
So what is the NASDAQ? The Nasdaq Stock Market, or simply Nasdaq, is the second-largest stock exchange in the world behind the New York Stock Exchange. The Nasdaq is mainly made up of technology or technology-led companies.
In the last 10 years, the Nasdaq 100 Index has generated an absolute return of 702.29% with a compound annual growth rate of 21.76%. However, in the last six months, its value has fallen by 21.53%. There have been some eye-watering falls in the value of Nasdaq-listed technology stocks over the last 6-12 months with many of them declining in value by 50% or more.
Why is this important? Because most of our clients have about 20% of their investments with us invested in our associated company, Minerva Money Management’s, fund the YFS Intelligent Wealth Fund which is invested 68% in technology stocks. As a result, most of our clients have experienced greater than average volatility in recent months and larger than usual falls in the value of their investments albeit only temporarily in my opinion.
We are more optimistic than ever that our fund is invested in great shares which have fantastic growth prospects meaning their share prices will bounce back very quickly once the technology market starts to recover.
As for clients who are invested in our discretionary fund management service with Transact or Hubwise, equally, we expect far more positive returns going forward due to a complete overhaul of our portfolio and strategy recently. Read all about it in this month’s Minerva Money Management blog, The Intelligent View.
As far as I am concerned global stock markets, especially the Nasdaq, are behaving very irrationally at the moment with a greater emphasis on growth stocks rather than value stocks. However, this recent trend is now changing in favour of value stocks. The YFS Intelligent Wealth Fund invests in value stocks.
In the 1930s, economist John Maynard Keynes said: “Markets can stay irrational longer than you can stay solvent.” That wise statement remains as true today as it was nearly a century ago. Our research shows that the technology sector is the most profitable one in the world, followed by finance and then energy.
What’s more, our use of technology isn’t going to decrease in the future. If anything it is going to increase a lot. That’s why I am more convinced than ever that the YFS Intelligent Wealth Fund has excellent growth prospects for the future.
Remember the dotcom boom-bust era in the late nineties/early noughties? When the vast majority of the overvalued, overhyped dotcom companies crashed in March 2000, a company called Amazon fell in value by 95%. So a quality stock fell substantially when a popular, over-inflated sector fell out of favour. Amazon’s share price has since risen by 10,000%.
I predict that history will repeat itself as usual and out of this technology market setback a much more substantial rise will occur and it will include quality funds like the YFS Intelligent Wealth Fund. So my message to you is to keep the faith. Sit it out. Be patient. You will be rewarded handsomely by not panicking and keeping your resolve. You know it makes sense.*
*The value of your investment can fall as well as rise and is not guaranteed. You may not get back what you invest. The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinion.