Christian Gardner: Lest we forget

Christian Gardner Lowes 160 byline

The phrase “lest we forget” is often linked to Remembrance Day, but was originally written in a Rudyard Kipling poem entitled ‘Recessional’.

Composed for Queen Victoria’s Diamond Jubilee in 1897, it is thought Kipling wrote it to warn of the transient nature of power. Since the end of the stock market downturn from 2000 to early 2003, which followed the bursting of the dotcom bubble, we saw the FTSE 100 rise over four years from below 3,300 points to over 6,700 points in autumn 2007.

We were, however, at the beginning of a global financial crisis – a crisis that, in 2009, three leading US economists described as the worst financial crisis since the Great Depression of the 1930s. Banks collapsed or, in the case of Northern Rock, RBS and Lloyds, were bailed out using billions of pounds of tax payers’ money and stock markets around the globe fell significantly over very short time periods.

There were many factors which caused the downturn but few predicted its severity and those that did were ridiculed. In late 2006, US economist Nouriel Roubini warned that “the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession” earning him the nickname ‘Dr Doom’ from the New York Times.

The low point of the stock market correction was reached in March 2009 by which time the FTSE 100 had lost 45 per cent of its value and the S&P 500, EuroStoxx 50 and Japanese Nikkei 225 fell by more than half their value (see chart).

As the markets stand now, the S&P 500 and FTSE 100 have almost recovered to their pre-crisis levels, standing around 6.7 per cent and 11.73 per cent respectively below their October 2007 levels but the Nikkei 225 and EuroStoxx 50 have not fared as well. Japan suffered the devastating tsunami in early 2011 which, with an estimated cost in the region of $235bn, made it the most expensive natural disaster ever and significantly limited any recovery potential. The eurozone has suffered the ongoing sovereign debt crisis which is likely to continue to stifle recovery potential until it is resolved.

The crisis will be talked about for decades to come in a similar context as Black Monday and the crashes of ‘74 and ‘29 but as time passes it’s easy to forget the full extent of just how bad things seemed in the darkest hours. Whilst I am sure many will be quick to point out that we’re far from out of the woods yet and there has been continuous talk of double dip recessions and deep public spending cuts, it seems hard to believe that just three and a half years ago the FTSE stood around 3,500 points.

Obviously those that had the courage to invest at the height of the crisis will have benefited from the recovery and might be sitting on substantial gains. For those who invested at what ultimately became the top of the market cycle the opposite could be true and this goes to prove the obvious – investing involves risk and the unexpected has a habit of happening every now and again.

Eventually things will return to ‘normal’ and there will come a time when it seems easy and comfortable to invest. However, that could once again ultimately transpire to be another bad time to do so. Consequently, many who invest at what, after the event, can be seen to be another peak in the market cycle may have to wait longer than they may have originally anticipated for their investments to return a profit.

The top of the market cycle is never apparent until after the event and whilst it isn’t always practical, possible or feasible we should always keep an eye on investor sentiment and bear in mind the sage words of the likes of Warren Buffet who tell us to ‘buy when everyone else is selling and sell when everyone else is buying’.

Major world index performance over the five years from 25 October 2007

*25 October 2007 to 25 October 2012, source FE Analytics


Christian Gardner is investment analyst at