Driving along today, 70’s classic “Stuck in the Middle” by Stealers Wheel came on the radio. Ignoring the immediate desire to cut someones ear off, I instead chuckled at the realisation that it was a perfect summation of the current political environment in the UK.
I had a bit of a wobble last week. Thursday in particular was a bit unpleasant, finishing the day down 2.1%. Seeing at least three holdings fall more than five per cent that day, I must admit I felt the slightest tinge of concern. Was this the beginning of the end? Have we hit that all important top? But then I took a step back, laughed to myself, and realised it was 2.1%. It was nothing. Am I that used to a rising market, that accustomed to all the lines going up that I worry when a fraction of it is given back?
There is of course no end of political uncertainty at the moment. Theresa May is fighting to create a minority government, Jeremy Corbyn is hot on her heels in case she fails. The Lib Dems don’t even have a leader. And tomorrow we begin Brexit negotiations. All told, we’ve had more stable periods. With that in mind, I think markets have done remarkably well to hold up. Tomorrow could be interesting…
…Or perhaps not. Perhaps we will continue our merry march ever upward. Broad market indices are up around 5% so far this year (dividends excluded) despite all this uncertainty. My portfolio is up around 15% (dividends included), so again, why was I fraught at the notion of a 2.1% fall?
In times of uncertainty I like to look at two graphs:
It should be fairly evident from both of these charts what I am getting at. Despite crashes, crises, even wars, the relentless march of equities continues ever upward. Business is adaptive, reactive. It changes with the times and always finds a way. It is evolution at work. The strong, survive. The weak, perish. The competition that exists within markets ensures this process continues, and will continue, regardless of our current climate of uncertainty.
Perhaps a downturn is coming. I wrote a few weeks ago on the possibility of this happening. But if it does happen it’ll be for economic, not political, reasons. And if it does, that’s what’s supposed to happen. Correction or crash, it is the nature of business to occasionally re-calibrate itself, to bring a little rationality back to our environment. Perhaps we’re due. Snapchat is still priced at 40 times sales, even though it’s never made a cent.
The point is, ignore what’s going on politically and nuzzle in the warm embrace of Capitalism.
Clowns to the left of me, jokers to the right. Here I am, stuck in the middle with you.
If you’ve any feedback or thoughts on this article, contact me on Twitter @britishinvestor, or leave a comment below.