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NEWS & ADVICE

Document with Pen

Markets: Time To Cash In Or Hold?

In 2010 with a new decade dawning, investors on the whole were quite a worried bunch. Our consciousness at the time was focused on banks going bust, countries looking for bailouts and the economic fear factor was very palpable. There seemed to be no end to the bad news & thinking back on it I can still feel the anxiety, it wasn’t nice.  


The feeling of unease and apprehension ran very deep. I think for those of us who could remember the 1980s in Ireland there was a fear that economic despair would return and the state of the nation ‘belt tightening’ speech from an Taoiseach was on its way!


Ten years on, the numbers tell a very positive story although there’s no doubt there are still scars from the financial crisis, unfortunately for some more than others. In Ireland unemployment is now at its lowest at 4.8% (from 16% in 2012) with a substantially young workforce and 2.3 million people at work. Unusually in 2019 almost twice as many people moved to Ireland from the UK rather than the other way around. The country now faces a general election with a major intergenerational conflict on display. The younger generation are worried about climate change and their grandparents are worried about their pensions. There was a banner at a recent climate change demonstration by young people that said “you destroy our planet we’ll take away your pension”. That certainly has a snappy ring to it, historically though more older people vote than younger people, so it’s easy to see where the political attention goes.


Stock Markets By The Decade So over the same time period, how have the markets fared? We are very used to the old adage that markets are about time and not timing and that is easily demonstrated to be true. If we divide the last thirty years into three decades we have some very interesting comparisons. The three graphs below show the performance of the S&P 500 index from 1990 – 2000, then from 2000 – 2010 and finally 2010 to 2020.  It performed along the following lines during each period.




1990 – 2000        (Decade 1)          430.76% 2000 – 2010        (Decade 2)          -13.97% 2010 – 2020        (Decade 3)          235.10%


If we look at a comparisons of investor attitude at the beginning of each decade we can see an inverse attitude to the actual ten year performance. In January 2000 we were in the middle of the dotcom bubble where investors had taken Alan Greenspans concept ‘irrational exuberance’ to a whole new level. Some tech fund managers had decided to begin valuing technology companies in terms of their sales, and not their actual earnings or god forbid their profits! As the dotcom bubble began to burst quite early into the decade investor attitudes took a sea change and negativity took hold. Most people if asked would say that the worst fall in stack market valuations was towards the end of the decade due to the financial crash. In actual fact the longest period of negativity in the S&P curve was between August 2000 and April 2003 and it was 31 months before it began to recover again. The financial crash of October ’07 created a steeper fall but the S&P began to recover again in March 09, far quicker.


As discussed above, decade 3 from 2010 began with investor confidence at a very low ebb.  Not only that but as you can see form the graphs the market itself was almost 30% below its high giving it breathing space to grow into very strong performance. The growth toward the end of the recent decade was dominated by the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) which now account for 15% of the index as a whole.


The Corona Virus & Markets At the time of writing, China is beginning to suffer significant impacts from the corona virus.   Everything from airlines to Starbucks to Ikea are closing to control the spread of the virus.    Unsurprisingly comparisons are being drawn to the SARS breakout of 2003. Market conditions are different now to 2003 as stocks were a lot lower following the tech bubble bust and not coming off a decade of strong growth as they are now. The longer term effects will be determined by how growth in China weakens. There were very few long terms affects from SARS or the avian flu so we will have to wait and see if the impact will be contained. Some say the virus itself is giving investors a reason to take a breather. Markets look stretched on fundamental valuations, trading at premiums to long term averages and the epidemic could be the used as a catalyst or excuse for a pullback in valuations.

At the end of the day if we can use the past as a trend line – but over the three decades – the graphs probably tell a positive story if you’re willing to invest and forget.

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