Letter from Fidelity (Market Volatility)

Jonbvn

Just got a letter from Fidelity (they hold my S&S ISA). Thought I would post it here. I would guess that they sent the letter, since a lot of people have sold or are considering selling....

I am writing to you, as a valued investor with us, about the recent volatility in global financial markets.

In my career spanning over three decades of investing, I have witnessed many instances of stock market volatility, and I certainly see parallels between current market developments and past periods of stock market weakness. In particular, stock markets had become overly optimistic and many investors had not been discriminating between higher and lower risk investments. Having experienced a strong bull market, the volatiHty we are seeing in markets now is perfectly natural and it is important to consider this in the context of over four years of strong gains from global markets.
Nonetheless, when markets fall, investors may lose confidence and be tempted to either stop investing or switch their holdings into cash. As ever, it is important that investors remain focused on their reasons for investing and to keep their long-term investment goals firmly in sight. If investors hold firm and persevere, history shows that they have ultimately been rewarded when they have taken a long term view.

Conversely, there can be significant risks when investors try to time markets by selling during periods of investment volatility. This is because analysis of UK equity market performance over the past 15 years reveals that relatively few individual days account for the bulk of overall returns. While it should be noted that past returns are not a reliable indicator of future results, a stake of £1,000 invested in July 1992 would today be worth £4,725 if left continually invested. However, if you happened to miss the best 10 days during that time, the investment would be worth £3,116. Miss the best 40 days and the stake would today be worth just £1,336.* The reason this is relevant to investors now is that history also shows that those 'best' days often come hard on the heels of market weakness, so trying to time markets can be highly detrimental to returns.

Looking ahead, I still remain cautious in the short term and feel that the volatility will continue for the time being. However, while current weakness in global markets may be unnerving for investors, choppy markets can sometimes present opportunities for investors like myself to top up holdings on a selective basis, particularly given the general strength of corporate balance sheets and some attractive valuations. It remains to be seen if the current financial crisis we are witnessing affects an otherwise robust global economic environment.

Whilst further volatility is likely, history has shown that staying invested in equities over the long term has proved a rewarding way to achieve your long term goals and I always find this thought reassuring. If you have any questions about your long term investment goals in the light of recent events, then now may be a good time to discuss these with your Financial Adviser if you have one.

StevieJ

As Carnet noted in an earlier post 'sell in May and go away' is market timing and has proven effective according to the stats.

nrsql

Whenever I see the old chestnut about missing the best 40 days or best 10 days I always think someone is trying to pull a fast one and take everything else with a pinch of salt.
If they were being honest they wouldn't be so one sided about the illustration - just shows what they think of the intelligence of the reader.

The only bit relevant is
>> The reason this is relevant to investors now is that history also shows that those 'best' days often come hard on the heels of market weakness

But notice no figures for that or what happened the day after.

I agree with the overall sentiment but feel that treatnig the reader with a bit more respect would be good.
They are worried about a crash and know that confidence is more important than value to the market so expect a lot of this sort of thing to turn up.
Also during a crash they will want private investors to be the last people out so the institutions show a smaller loss.