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Guest Blog from Simon Jackson – Revenge of the Market Gods

23/3/2020

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My mate Simon Jackson kindly wrote this Guest Blog to try to capture some of the essence of how the recent Market collapse has played out from his point of view. Having read it through for the proof-read, I can say it is a very helpful piece and brings some perspective to what is going on and also shows how someone with Simon’s background of Accountancy can make errors. I particularly endorse his comment that it would be a big shame if newer Private Investors get scared off and leave the great game. I had to smile also when I read his words about selling his Winners too fast !! (or in this particular case his selling being perhaps motivated by simply the relief at getting back to break-even after a difficult Investment had turned around.)
 
Anyway, it’s a really good read and BIG THANKS to Simon for providing WD Readers with this and for helping me fill up my Website with yet more content !!
 
Cheers mate, Pete.
​

​Well, what an incredible first 2 and a half months of 2020. I suspect towards the latter end of February, most of us were sitting on percentage gains that would have been acceptable if they had been achieved over 12 months, rather than just the 2 and a half months that had played out so far. But to now quote something from a cartoon animation series that I grew up with (prior to losing at cricket most Sunday mornings and mildly enjoyed before getting out LBW to a ball that pitched outside leg stump as the parent umpires didn't know the rules); “But the ancient Gods of Olympus are angry and threaten a terrible revenge”. It certainly feels that the market Gods have taken that revenge and especially quickly - and to an extent indiscriminately in recent days.
 
As a bit of history before we get into the challenges of the last few weeks, I've been investing since 2001 as I completed my university degree. Since then, I've steadily increased my exposure to the stock market. However, I withdrew a significant amount of funds in 2007 not because I had any inkling of what was to come but because at the age of 27 I thought it was about time I moved on from renting and purchased my own home and I still own that property, but the amount of due diligence I did on it on reflection was scarily little. I viewed the property once, thought I could easily change the avocado bathroom suite from 1973 and also the kitchen, and that was that. Offer put in and accepted all in a day - subject to a subsequent survey which I did get done by a professional !!
 
Post that purchase and a few further property purchases along the way, I've slowly built up a self-select ISA with the intention to prove I'm basically Warren Buffett; or maybe Neil Woodford. Notwithstanding all the above, my exposure to the vagaries of the stock market has steadily increased both as part of my own investment portfolio but also as part of the various stock and pension plans that I've built up over the past two decades. Looking back, I don't think the 21 year old me working in the Civil Service really appreciated the wonderous thing that is a final salary pension scheme – I had other things on my priority list !!
 
Of course, all of the above is delightfully uninteresting and provides little of an insight into how I've felt and dealt with the material downward gyrations in the market over the last few weeks.
 
Maybe some of my pragmatism – some may call it intransigence – is borne of the fact that one of my very initial purchases nearly 20 years ago was in Headlam HEAD. Back then, share prices were checked on teletext and any news releases were read very slowly on a dial-up internet connection. I thought I was a bright young man and could crunch the numbers successfully - albeit at that time I was a trainee project manager rather than the chartered accountant I am today.
 
In all honesty, I can't remember the exact timing, but within a maximum of 5 days after my purchase through DLJ Direct they had announced a profit warning and the share price had fallen by half. Looking back, while the actual cash loss on that one day was relatively small, the psychological impact of simply seeing the value of my investment fall materially was a chastening one.
 
A year or so later, I'd moved on with my investing and also work-wise, and had started my accountancy training. Looking back, there's nothing worse than a trainee accountant as someone who thinks they know everything about the P&L and Balance Sheet under UK GAAP as they were all called back then !! How I ever coped before I knew about the Black-Scholes model I will never know.
 
I bought Stagecoach SGC, convinced they'd managed their way out of the Porterbrook and Coach USA acquisition. 70p became 60p, 50p, 40p, 30p, 20p and I think I recall a bottom of around 12p. “What's going on?”, I thought, “they're not going bust, I've done the maths.” The share price chart subsequently showed that was correct, but my ability to time the market was not. Indeed, I didn't hang around for very long to reap the full benefit. If I'd let it run, it would have made me a material amount of money back then but my situation was such that I was just mightily relieved to see it go back above whatever my buy price was, and I sold a short while after.
 
Cutting off my winners too early is a mistake that I suspect I have oft repeated.
 
Since then, and indeed despite that, I've continued to invest. I've made plenty of mistakes – I made a lot of paper money off Niko Resources and then lost more than that on the way back down (it's an incredible chart). I also owned Carillion CLLN in my ISA when they went bust – some of you may now be thinking how did an accountant not see that Carillion was a dead man walking? In short, I should have. But as you pick successful stock after successful stock, so you make the mistake of dumbing down the quality of the due diligence on investments. A simple covered dividend yield filter, when at that point I intended my Stocks & Shares ISA to be simply following a high yield large cap focus, is irrelevant when the wider business is going down the swanee.
 
So fast forward to now. What on earth is going on? Shares moving 40% or 50% in a few hours over a number of days - mainly and normally downwards - on no new news other than the fear of the impact of coronavirus. Are these businesses now bad businesses? Of course not. Will they survive? Some will, but no doubt the unfortunate situation is that some won't.
 
Would another 100% loss or a handful of 100% losses as a consequence of the coronavirus drive me out of the market? No, it would hurt, it would hurt a lot - especially when I think my overall share portfolio is small in terms of the number of holdings.
 
Do I think I made the wrong decisions on deciding in what to invest in? My numbers would clearly suggest this but these times certainly have a feeling like no other. The global financial crisis in 2008/9 was mainly restricted to certain sectors. I can't time the market but nor should you have to as good investments will stand the test of time – especially if their balance sheet is more solid than Carillion !!
 
As part of my MBA back in 2014, one of the modules covered crisis management. One of the guest speakers was the FD (Finance Director) of one of the banks that ended up nationalised and he himself was banned from acting as a director. It was a fascinating afternoon listening to him talk through the events that unfolded and the feeling of helplessness the Executive team felt as their requests fell on deaf ears at the Bank of England. I'm sure many of us are also feeling an element of helplessness, of thinking “Why didn't I see this coming?” and/or “Why didn't I sell (or sell more) on or around the 20th February?”
 
What is important is to understand why I took those decisions. The market may have subsequently shown those decisions to be incorrect but that is with hindsight. We're currently seeing huge restrictions applied to global and UK businesses to combat coronavirus. The business I work for has made all of us, where we can, work from home. I've never been more familiar with my living room and coffee table (it's my laptop desk nowadays !!).
 
These measures announced by governments around the world will no doubt have a horrible impact on in-year profitability. I don't think there is any doubt of that. But if you have the resources to survive it – as many companies do – I remain confident that many companies will be able to emerge stronger from this crisis. I hope many of the private investors currently seeing material negative in-year returns will not be scared off for good, as history shows the markets will recover.
 
One book I read recently was nothing to do with investment. It was Viktor Frankl's ‘Man’s Search for Meaning’, which is his account of his time as a prisoner in a Nazi concentration camp. At work, I think I have a reputation as a no-nonsense individual (indeed this has been politely confirmed in some 360 degree feedback !!). However, this book was without doubt one of the hardest books I've ever read. How does one even begin to comprehend the horrific evil that he both witnessed and endured? There are many passages I could quote from this book but I'll pick one to end that should help put all we see in the markets today into perspective:
 
“Everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances, to choose one’s own way”
 
Thank you for taking the time to read my thoughts on recent events and I hope this will help you navigate through the coming months.
 
Regards, Simon
@Jackson_S_D
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