13th January 2021
At the end of the last blog (“UK World Beating – seriously!”) I promised that this month the US investment mania would be covered off. Well, the US is an asylum which just keeps giving, as evidenced in just the last few days, and that is unlikely to change through the coming year.
“A Year Of Living Dangerously”. No, not 2020. Think 2021.
Last year was difficult, extreme, and tragic, in so many different ways. Yet, as observed last time, there is greater investment confidence in the UK, albeit from very low levels.
In key respects, there is now more clarity for UK-based investors. The emerging vaccines are vital to restore confidence, within markets and wider economies. In the UK in particular, the march of the vaccines combined with the end of Brexit uncertainty are a powerful antidote for the UK stock market, which has been under the weather since 2016, since when global investors have kept their distance.
That gives cause for cautious optimism. It is the reasons for caution which are todays focus.
Since this time last year, the extreme risks, centred on the US stock market, are not simply unchanged – they are greater. Valuations are even more extreme, investor behaviour reached new manic highs, and the debt mountain has exploded upwards. The vulnerability of this wobbly edifice to another shock has grown. And where the US goes, we all go – at least over shorter periods.
The nature of a shock is that its form and timing are unknown. This time the shock was the pandemic. Next time? No one knows. Cyber war. Sudden climate event. Major national debt default. New virus. We don’t know, we just need to be aware of the vulnerability to an extreme shock, and prepare.
In addition, it is inherent to an investment mania is that it has no natural end. Just observing the fact of a mania does not help us with timing.
You are left with the persisting investor dilemma. Balancing US vulnerability to another shock on the one hand, with opportunities, where the UK stands out, on the other hand.
Optimistically, if confidence continues to build as the vaccines are rolled out, the value in the UK stock market can be unlocked, and the window for that occurring might be a honeymoon period for Joe Biden.
In tandem, we must all prepare for the risks. You can do this with a mix of cash and stop-losses which suit you and your attitude to risk. Since Pfizer Monday (9th November) many clients are lowering their cash levels to nearer 20% of their portfolio, in that spirit of cautious optimism.
Do talk to your usual adviser if you want to take notably more, or less, risk than is implied by the latter. There is no perfect investment solution – there is only what suits you best.