Clover Portfolio Update (the COVID-19 edition)

Credit: Photo by Sandro Capatti/Shutterstock: Daily life during the Coronavirus outbreak, Parma, Italy

Key Take-outs:

  • The stellar returns of 2019 were erased in full by one of the fastest (and possibly shortest) bear markets in history, with the bellwether US S&P 500 index falling 35% in the four weeks between late Feb and late March as market panic spread worldwide.
  • After the punishing drawdown, markets, particularly the US, have recovered strongly, with the S&P 500 index gaining 23.6% since its late March lows.
  • The Australian sharemarket has been less responsive, weighed down by the banking and listed property sectors.
  • The S&P/ASX 200 index fell 39% in the same late Feb to late March period, but has only recovered 18.5% to date since the March trough.
  • Despite the falls of the last three months, the longer-term return picture remains remarkably robust.
  • Clover’s positioning to favour overseas versus Australian shares has cushioned our portfolios relative to more traditional asset allocations.

To say it’s been one hell of a ride these past few weeks is an understatement.  You don’t see market volatility like this very often, and for many it probably felt like being caught in the open by a Category 5 cyclone with nowhere to hide.

Amidst the mayhem of February and March there have, however, been some important lessons, provided you’re prepared to learn from the experience. To do so, read on.

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Market Plunges – an Investing Rite of Passage

5 investing biases

You never forget your first share market plunge.

It was August 1997 and there I was, a mere few months in my new role as a Para-Planner (the term for a Financial Planner in training) with the private client arm of one of the world’s largest accounting firms.

As is typical of many twenty-something year olds with a finance degree, I rated my ability as an up-and-coming share market wiz highly. I had already built up a small portfolio of direct shareholdings in what could best be described as ‘speculative’ positions, with plans to add newbie miners, biotechnology startups and the fledgling “World Wide Web” enabled tech sector.

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It’s Déjà Vu All Over Again

Yes it’s that time again. Time to relive a scene that’s played out with annoying regularity. The one where skittish financial markets combine with an eyeball-chasing media to help the nervous transfer their future wealth to the patient.

Once again the headlines are screaming about financial disaster and impending doom. “Aussie stock market slumps after US-China trade war prompts Wall Street plunge” cried one earlier this week, while “Wall Street slumps as yuan slide intensifies trade fears” shrieked another.

These headlines are designed to grab your attention. That is, after all, the whole purpose of eye-catching headlines; the more dramatic they are the more likely you are to be drawn to them. And the more sales, subscriptions and ad revenue generated. Very possibly at the expense of investors who will be spooked into taking short-term, reactive, action to their long-term financial detriment.

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