Following a meeting with Blackfinch Asset Management earlier this week, they provided the following data discussed during our meeting. I thought it would be useful to share it with you.
Below, we’ve taken a look at the returns of the global stock market (MSCI All Countries World Index) since the start of 2000 up until the close on 18th May 2022. This period includes some of the worst stock market crashes on record including the Dot Com crash, the 9/11 Twin Towers attack, the Iraq Invasion, the Global Financial Crisis, COVID 19 and the ongoing situation with the Russian invasion, inflation fears and interest rate hikes.
Despite these, you will see that if an investor had held their investment for the entire period, they would have returned just over 82%. More importantly though is to see what would have happened if they’d sold out of the market and tried to time their re-entry. It is impossible to predict exactly when the ‘bottom’ of the market is, and history shows us that some of the best, and most pronounced, upside returns have happened in the most challenging economic times. The following table sorts the top 15, single day returns for the global stock market since the start of 2000. Notice how these best returns all happened at a time when investors would have been at their most nervous.
| 13/10/2008 | 9.3% |
| 24/03/2020 | 8.4% |
| 28/10/2008 | 7.0% |
| 24/11/2008 | 6.6% |
| 19/09/2008 | 6.2% |
| 08/12/2008 | 5.7% |
| 06/04/2020 | 5.5% |
| 13/03/2020 | 5.3% |
| 10/03/2009 | 5.1% |
| 23/03/2009 | 5.1% |
| 10/05/2010 | 4.8% |
| 04/11/2008 | 4.7% |
| 15/10/2002 | 4.6% |
| 26/03/2020 | 4.6% |
| 02/04/2009 | 4.4% |
Another way to look at it is by assessing what would have happened if clients had sold out of the market and missed some of these upside days. The following plots what would have happened to an investors returns if they’d missed 1,2,3,4 or 5 of these top performing days (the first bar shows the return if they’d stayed invested over the entire period for reference):
For reference the table below shows the exact return figures plotted on the above chart
| Period | Return |
| Full Period Invested | 82.5% |
| Missing Best 1 Day | 67.0% |
| Missing Best 2 Days | 54.1% |
| Missing Best 3 Days | 44.1% |
| Missing Best 4 Days | 35.2% |
| Missing Best 5 Days | 27.3% |
As you can see, by missing just 1 or 2 of those best days during the past 22 years would have significantly reduced the client’s overall returns.
Looking at the data also highlights how quickly and dramatically upside moves can come to markets and it is our job as investment managers to ensure your client portfolios are positioned to make the most of those upturns when they arrive and to ensure the overall risk is managed in line with their expectations.
Comment
This understanding and data input from Blackfinch is nothing new. I’ve been looking at this type of information for over 30 years. However, in volatile markets, particularly when we have so much going on at the moment, compounded by a media that can take negative and biased views, it’s nice to remind yourself of the historic facts.
Remain invested, be patient and if possible, continue funding your pensions and investments. Regular monthly funding works well over the long term especially in a volatile market.
Steve Speed
09/06/2022