Lifeboat Drills

I have never been on a cruise but am reliably informed that the lifeboat drills happen at the beginning (often before the boat leaves harbour). Naturally these are done so that if a disaster happens the guests know what to do.

In investing we also use lifeboat drills to remind investors of the volatility we can see at times in investment markets.

There is a key difference between a cruise ship lifeboat drill and an investment lifeboat drill however. In the first instance it is pretty unlikely the drills will ever be needed but in investments they are almost guaranteed to be needed.

For example, you may have heard of “bull” and “bear” markets, the former when markets are rising, the latter when they are falling ( you grin and “bear” it).

Ask yourself this question… How many times have we seen the UK Stock market (FTSE All Share Index) fall by more than 10% since 1956?

I often ask this question with the answers generally ranging from two to eight.

The answer is in fact 16 or an average every 3.75 years*

We can conclude from this that markets correcting (not crashing, something that crashes rarely recovers) is very common and to be expected.

Does this make it enjoyable when it happens, absolutely not but knowing it is very common is a way to ignore the noise/media hype and accept it is a normal part of investing and by not reacting we harvest the above inflations returns we invest for.

Have a great weekend

Neil

*Source : EBI Turnkey Workbook March 2017

Share this post

Share on facebook
Share on twitter
Share on linkedin
Share on print
Share on email