Nightmare on Wall Street

The bland commercialisation of Hallowe’en isn’t the only thing David Coombs is dreading: October is typically a terrible month for share markets. Still, our head of multi-asset investments has an instrument creepier than Freddy Krueger to keep the kids and market slumps at bay.

Tracey, my partner, was asking me, “Heroes or Celebrations?”

I feigned interest in that subtle way only men can, “Uh, Heroes.”

“Shall we get both?”

“Er, yeah, both.”

At this stage, I lift my head away from the paper. Why? What have I got myself into? Then I relaxed somewhat: ahhh, they are only chocolates. But then I panicked again: it’s Hallowe’en, they must be for the children playing in our road (I know in this age of Game of Thrones, Call of Duty and Generation Z this conjures up a quaint Victorian image). They will no doubt be trick or treating. The doorbell will be running red hot all night …

Now, I hate Hallowe’en and all its commercialisation. It was certainly not a thing in the Welsh village where I grew up. It’s a weird American thing and now it’s over here. Children that do not leave their bedrooms (where their XBoxs and PlayStations live) for 364 days of the year go out terrorising fund managers on October 31st, blackmailing them for sweets at the soft end of a Nerf gun.

I could be celebrating this Hallowe’en, however. If it passes without another October market meltdown. Octobers have a bad history for stock markets and the investment talking heads have been laying it on so thick it may just spook everyone into another correction. I have watched with amazement how the media have been trying to draw parallels with the market crash of ’87 just because we had a storm then and it was October as well. Total nonsense of course.

Still, chief financial officers have been in a particularly ghoulish mood lately as they release their companies’ quarterly earnings. I hate quarterly earnings season, as it represents all that is bad with modern investment trends: short termism. The price reactions to near misses or beats on guidance are ridiculous in most circumstances. This also used to be an American thing. The focus on such short-term results must distract some management teams and influence decision making. Does it hinder risk taking?

Currently, volatility is masked at the index level, with implied volatility on the S&P 500 and the FTSE 100 hovering near record lows. But it can be very significant at the individual stock and portfolio level. This requires iron-clad discipline from portfolio managers, as the noise is often deafening.

My approach to this nonsense is to add significantly to any of my companies that gets hit by poor short-term results, so long as nothing has changed to the investment thesis. This is the case in almost all instances. Hold is not an option for me. That is putting off a decision – wait and see, if you like. Many people do this because they want more certainty. Unfortunately, when you get that certainty so does everyone else and the opportunity has been missed.

Is adding in these situations more risky? Absolutely. Will some of these additions be mistakes? Possibly. But I have to have trust in my process and conviction in my companies – their management teams in particular. Challenge them; don’t fall in love with them; follow the sell discipline, certainly; but stick to the long-term view that led me to buy these businesses in the first place.

The companies that beat short-term earnings guidance do tend to get a share price boost, but the scale of gains tends to be less than the falls experienced by those that miss. Fear still seems to outweigh greed it would seem!

As for Hallowe’en night, I have a long-term plan in mind for it too: the kiddies will get some Miniature Heroes and a lecture on targeting a high Sharpe ratio. They won’t darken my door next year!

 

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 5 (5 votes)