JANUARY 2021 Market Update

— Jan 22, 2021


It may surprise many people to know that Sir Isaac Newton is almost as famous in the investment world as he is for his work as a scientist.

This is due to his experiences in one of the earliest, largest and most famous bubbles of all time, the south sea bubble of the early 1700’s.

Newton was not only a scientist but a man of many other talents, including that of a businessman and investor, and already rich by the time the South Sea company was launched.

He invested in the early stages and then sold later on making a handsome profit in the process. However as the share price continued ever upwards and speculating in the stock became virtually a national obsession, he saw many others around him getting richer and this by all accounts was almost unbearable (and many of us can surely empathise with this most human of emotions!).

He could not resist the urge to invest again and this time more heavily.

Of course it proved disastrous as the bubble popped soon after and he lost a large part of his fortune. No wonder a traumatized Newton apparently stated “I can calculate the movement of stars but not the madness of men”.

We would stress that just because prices of an investment go up, or up very quickly, this does not constitute a bubble. However, when it begins to move from the investment world and starts to pervade everyday life, then it does become one.

Well it seems we are in bubble territory again with cryptocurrencies and some technology stocks. When articles are appearing left, right and centre about 20 year olds with no previous investment experience making fortunes from buying bitcoin or Tesla or other technology stocks and penny shares (transaction volumes in penny shares in the US have gone truly ballistic) it is obvious what the outcome will be.

We will not make forecasts about when it will end in tears, but then as investors who have seen it before we know that end in tears it surely will. Lockdown boredom and the Government and central banks furlough money, which is encouraging all this speculation, will have a lot to answer for once it is all over.

Meanwhile in the ordinary investment world, little has changed. The UK equity market has begun to perform well and we think it is just getting started. By contrast, we continue to believe that globally fixed rate bonds and many parts of the US stock market remain significantly overvalued.

We will endeavour to ensure your portfolios avoid the bubbles and grow through investment in companies and assets where the value is demonstrable not full of hot air!