Peter Hargreaves founded Hargreaves Lansdown in 1981 with Stephen Lansdown and has seen many market cycles during that time. He speaks here in a personal capacity and it’s not personal advice. If you’d like to speak to a financial adviser, contact us for advice.
During 60 years of investing, I have had the misfortune to be invested during many stock market crashes, the first one being the 1974 crash when basically Britain was bankrupt. We were saved by the fact that North Sea oil had just been discovered. There have been many others. The one that most affected me was 1987, just a few years after we had formed Hargreaves Lansdown. It took several years for investors’ confidence to return despite the fact that anyone investing in the UK stock market on 1 January in 1987 was in profit on 31 December and the stock market offered many opportunities during those ensuing years.
The wisdom I have gained during those numerous crashes, some predictable and some without any apparent stimulus, was that the best strategy was to sit tight.
I have known people who felt they had sold fortuitously at the start of a crash or just before. But even those people fared worse in general than the ones who sat tight. Quite simply few people ever get back in the market at a lower level than when they sold. Though there’s no guarantee that markets go up after falling, and time periods vary after each crash, markets do tend to recover.
Some events subsequent to the tariff declaration have vindicated the idea that they will spur growth, such as the latest positive job figures in the United States. Donald Trump can claim this as positive, but he will come under huge pressure to change his position as foreign-made items which Americans desire will increase in price and cause discontent. Discontent in the form of yet more market volatility – is likely to be a constant through 2025. Markets will have to readjust; economies will have to readjust. Successful businesses, on the whole, are very good at weathering storms and exploiting opportunity.
The benefits of globalisation
While I understand Trump‘s economic strategy, the point he is missing is that competition is good for business. Many things that are made in America are world beating, many are also inferior to products made elsewhere. It would be a more sensible strategy to concentrate on those products which are good – for instance we have an American sub-zero fridge in our home. American cars don’t seem to be as well built as Japanese and German ones. It is senseless propping up lame duck industries with tariffs.
Americans will eventually see sense, but it will be a troublesome time in the market. Fortress America might look a good idea in the short term, but you can rest assured America will become much less competitive. The rest of the world will become considerably more competitive. It will take time for that realisation to affect markets. In the sixties and seventies the German currency appreciated appreciably, but still German products were competitive. You could compare this to tariff increases. You can make the same comparison with the Swiss Franc still exporting despite its strength. These tariffs will shake up Fortress Europe.
What next?
I believe markets have considerably overreacted. Markets are priced purely on buyers and sellers’ activity, when there are more sellers and buyers markets go down even though the volumes might be quite small. Similarly, buyers will suddenly realise how cheap investments are. While there are no guarantees, this could turn prices extremely quickly. It could also be some time before the market recovers – and a bumpy recovery at that.
The question that we will be asked persistently is “should we sell?” My response will be “sit tight.”
I can offer you no comfort other than to state the obvious that you only make a loss when you crystallise it.
The problem with the stock market is that you can look up the price of your shares. I’m sure the turmoil will affect the price of many assets, only marketable securities immediately reflect the volatility. I haven’t sold one share. In fact, I have just invested in a business.
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