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  • Stick or Twist? FTSE 100

    8th October 2017
  • It's now cheaper to hire a 1100 foot tanker for a day than it is to hire a Ferrari for a day, though I can imagine the former will use substantially more fuel. To hire a 1100 foot tanker will now cost you 'only' $1563 per day, 92% lower than in August. For £3000 you can hire a Ferrari F40 for 24 hours if it 'floats your boat'. Such is the fall and demand for transportation to ship raw materials round the world, especially China. 

    We have seen this play out since the new year with China announcing lower than expected growth rates, which in turn shocked global stock markets. The catalysts being the lifting of Iranian trade sanctions and over supply/lack of demand of oil. At the time of writing oil is just under $28 per barrel.

    Should we all sell up, pack our bags and head for the hills to live as self-sufficient goat herders? Whilst past performance is no guide to future performance, statistics tell us having an Armageddon approach is premature. Okay, we advocate having a diversified investment strategy to include asset classes other than equities to potentially dampen unrealised losses, but let's only look at stocks and shares for the purpose of this article.

    Volatility is obviously not an investors best friend. Whilst volatility does not always result in falling markets, they are sometimes synonymous. The chart below illustrates the largest declines in the FTSE 100 during any one year since 1984. (in orange)

    In blue, however are the final year returns. In 9 years out of 21 the FTSE 100 has ended lower at the end of the year than at the beginning. Arguably at least four of these have been due to genuine crises's such as the Global Financial Crises, Dotcom bubble, the Asian Crises. All periods, where in hindsight markets were overvalued. The question here then is, do you think markets are overvalued? Remember, if you are old enough the FTSE 100 has returned over 1200% since 1984. Cash under the mattress has not.