Some rules for coping with stock market panic.

We have seen big losses on the stock markets here and abroad yesterday, overnight, and to continue today.

Some rules for coping with stock market panic.

Don’t Panic.

Block out the noise. The first headline I saw this morning was, "Worst falls on the US stock market ever". Referring to the number of points falls. There have been many, many days when the market has fallen by more as a percentage of the market. Don’t forget the rapid rise we had in 2019.

Keep perspective.

Bad news sells, much better than any good news story. There is a lot of information and misinformation out there. Stick to trusted sources. We have a 24/7 news cycle and people are trying to grab headlines.

Investors overreact, Fear is a much more dominating factor than greed.

From the market lows of late 2018, markets rallied over 35%. That rally in a short period of time has created this pocket the market has now hit.

This is not 2008. We do not have the securitized debt. We do not have a credit crisis.We do not have a liquidity crisis. We have tighter governance on financial products, financial markets, and financial institutions. Banks have had to tighten up their balance sheets to reduce liquidity risk. In recent times banks have been loosening their lending criteria. The system is not near as leveraged as it was.

The US economy, the world’s largest has been humming along at a good pace. China is containing the Covid 19 virus with only 50 new cases reported yesterday. They are getting back to normal. Italy has taken drastic measures to slow down the travel of all citizens and the spread of the virus. The majority of people who have contracted the virus have recovered and had only mild symptoms. Macron in France is calling for a concerted and collective stimulus package from Europe. In Australia, Morrison will announce this week what stimulus the government is going to provide to stimulate the economy.

The market falls yesterday were driven primarily by some good news for consumers. Putin and the Saudi’s want to declare war on the shale oil producers in the US. I see oil as a tax I use the same amount of it whether it is $1.50 or $1.20 a litre. As the cycle comes through and prices decrease, I will have more money to spend elsewhere. Interest rates are coming down, providing further savings to mortgage holders and we should see some reduced tax rates which add further savings.

Don’t panic, is the best advice I have ever been given, applicable to every situation imaginable. Panic does not make anything better and often makes things worse. I would add, wash your hands like a doctor, stop touching your face, stay home if unwell, and know that it will all be fine in retrospect.

I expect a quick recovery when the health threat recedes. Remember investment portfolio are not wholly invested in shares. We have always endeavoured to build diversified investment portfolios to protect on the downside.

Jeff Noble