Investment Committee Meeting Notes 3 March 2020

The latest quarterly Town Close Financial Planning Investment Committee Meeting took place on 3 March 2020.

One subject dominated: covid-19, we discussed nothing else. As a result of the recent turmoil we believe there are opportunities to be had now, and in future, should values drop further.

Where we can buy quality, long-term investments at a good discount we should, therefore we recommend the following:

1. 1. 1. 1. For now, with values down 10%, we recommend the following change:
            Reduce your bond fund from 20% to 10% and invest that in the global smaller companies fund you already own.
         2. If values fall by another 10% (20% total), we recommend the following additional change:
            Use 5% of the remaining bond holding and invest that in the global larger companies fund you already own.
         3. If values fall by a further 20% after that (40% total), we recommend the following additional change:
            Use the remaining 5% in bonds and 25% of the cash you hold with FundsNetwork (and possibly elsewhere) and invest 10% each in the smaller companies, larger companies and emerging markets companies.

      As values recover, we will look to return profits to both your bond and cash allocations as appropriate.

For those interested, here is the (vaguely cleansed) transcript of the meeting:

“Covid-19
We looked at a graph comprised of WHO data regarding the number of confirmed cases outside of China. They appear to be following the same pattern as in China. The number of new Chinese cases has flattened off. It’s looking like that’s just starting to happen outside China too. The worst could be over or will be in the not too distant future. That’s what we anticipate at least.

The market reaction has been curious in some ways. The market has reacted strangely normally. The huge shifts (3% daily movements for almost a week) didn’t lead to flash crashes or weird hedge funds blowing up.

Ultimately, we’re not at all concerned about any of this, it seems to us to represent more of an opportunity than anything else.

The kind of things that would concern us don’t seem to have to happened.

In 2000, we got down to about 60% there as well between 2000 and 2003. But that required a paradigm shift in how we viewed the progress of technology. Coupled with that was the Twin Towers and a second Gulf War. It needed all of that to drive the markets down 60%. It’s really difficult to see that level of catastrophe coming from coronavirus.

In 2008, equity markets eventually got down to about 50% of the prior values. And, and the reason for that was pretty clear. We didn’t know whether the banking system was going to make it through. And the banking system is integral to a developed market economy and the sort of capitalist system way of doing things.

The markets are not concerned that this is the zombie apocalypse. The markets are concerned that the disruption to supply lines etc. in the main, and that gives us two scenarios:

1. Economic activity is postponed for a relatively short period of time. There are no lasting consequences or at least there are very few lasting consequences. People just delay purchases, and then there’s a flood of orders, but no permanent damage.
2. Worse is if inactivity goes on for longer. That starts to put people at risks as businesses shut down. It’ll just take longer for people to find their feet and activity to resume as it was before.

Which one comes to pass? We think the first, but it could easily be the latter. It’s that degree of uncertainty that the market doesn’t like. And as that uncertainty continues, opportunities present themselves.

Ultimately everything will be alright in the end.

The Fed will reduce interest rates making the cost of capital down cheaper. Oil prices are already down, which means overheads are down. Both will stimulate the economy.

The bigger bar is therefore psychological. Although justified to an extent – something really is happening – it will ultimately be proven to be overcooked.

Nonetheless we could fall another 10% or even more. But the metrics are already suggesting that the market is oversold. Unless you really are factoring in a very permanent loss of economic activity, which we aren’t.”

And that was the meeting. The next will be in June.

future proofing your finances

advice@townclosefp.co.uk 

Town Close are expert financial planners. Our goal is the same as yours – to help you do the things that are important to you in the time you have remaining.