TONY HAZELL: Why I WON’T buy in to the coronavirus panic

It’s been a sobering week for investors. As someone who has been investing for more than 30 years, I have drawn on all my experience to sit on my hands and do very little.

The Hazell family’s investments have fallen around 7.5 per cent from their peak. They could fall again, especially if the coronavirus (dubbed COVID-19) has a widespread impact in the U.S.

But perhaps, like you, I am too busy living my life to delve in and out of the stock market on a daily basis. I won’t be selling. 

Keeping their cool? Traders at New York’s stock exchange this week as the coronavirus outbreak brought chaos to global markets

My strategy is to buy and hold, taking money only when I need it — such as for our house extension a couple of years ago.

Would it be fair to dub last week the ‘Coronavirus Crash’? The FTSE 100 fell more than 11 per cent and the American Dow Jones had its biggest one-day fall in points terms, of 1,191. But this week has seen a bounce back.

While sudden falls can give pause for thought, a full-scale bear market (with shares drifting down over a prolonged period) can be tougher to endure — and we may yet see this depending on how long this COVID-19 outbreak lasts.

I’ve invested through a few such periods and always came out smiling at the other end. 

After the tech boom from January 2000 to January 2003, the FTSE 100 fell by 51 per cent as events such as the 9/11 terrorism attacks continued the drag on shares.

But when these events end, shares can bounce back rapidly. In March 2003, they rose more than 13 per cent in just three trading days.

When banks’ greed and incompetence led to a crisis, the FTSE 100 fell from 6,348 to 3,497 in less than a year from May 2008 — a 45 per cent drop.

But the second half of July 2019 saw them rise by almost 10 per cent, and by the middle of September they were up by 25 per cent.

Anyone who only began investing over the past decade or so — and this means many of those auto-enrolment pensions — will not have had sustained falls.

The lesson is that selling will make your paper losses into real losses — and you are very likely to miss out on any sudden upturn.

After the tech boom from January 2000 to January 2003, the FTSE 100 fell by 51 per cent. But when these events end, shares can bounce back rapidly

After the tech boom from January 2000 to January 2003, the FTSE 100 fell by 51 per cent. But when these events end, shares can bounce back rapidly

The only thing that might prompt me to sell now is if I needed money in the next couple of months for a big event such as a wedding or house purchase.

There’s another often-overlooked aspect to holding shares: the dividend income paid by many companies.

Investment company Link says UK dividend payouts hit £110.5 billion last year. That’s £1 for every £20 — or 5 per cent — invested at the beginning of the year. 

The yield on the FTSE 100 is currently about 4.7 per cent, so for every £100 invested you could hope for £4.70 income.

Dividends are not guaranteed, but they are a tempting reason to remain invested.

For my part, I will at some stage be digging into my pension and Isas to help fund my retirement, but that is a few years off yet.

Younger investors can afford to ride out the ups and downs. I have told my stepsons to carry on with their regular monthly investing.

They will be buying at a lower price than a month ago so will get more for their money — and their investment horizon is hugely further away than mine.

Balance can become more important than ever during turbulent times. Some investment funds will outperform because of their managers’ strategy or the type of shares held. Some parts of the globe may fall further, others recover faster.

But a balanced portfolio should give you some winners among the also-rans.

Ryan Hughes, head of active portfolios at AJ Bell, warns of ‘false diversification, when investors discover that all of their holdings are broadly exposed to the same themes. 

True diversification means holding assets that perform differently, and over the past week this has meant owning government bonds’.

Falling share prices can also give an opportunity to bargain-hunt if you think the falls are overdone.

The Chinese may buy less whisky for a few months but this is a temporary phenomenon rather than a long-term trend, so why sell Diageo? 

Fund manager Nick Train bought Fevertree shares for his Finsbury Growth & Income Trust last month. I, too, bought the shares last year after a steep price fall. Their continued fall means I am currently sitting on a rather unhealthy loss.

Disappointing Christmas trading had already taken a bite, and fears that coronavirus will mean we go out less and drink less have put them right out of favour.

From a personal perspective, I know one thing: if Mrs H is forced to self-isolate for two weeks with only daytime TV and her husband for company, the consumption in our household of gin and Fevertree will rocket.

Finally, a fact that may surprise many. FE Analytics figures show the average China fund increased in value by 2.84 per cent in February following a 4.59 per cent fall in January.

Ben Yearsley, director of Shore Financial Planning, speculates that we could see a similar pattern once the spread of the virus is under control. ‘A ‘V’-shaped market fall and bounce is quite likely,’ he says.

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