'Whisper it', stock markets have surged
Since the summer of that year, we have seen absolute terror unleashed on the global economic and financial system and we have seen an equally dramatic response from policy makers.
More recently, as in 2015, we have had to contend with extreme difficulties in Greece and significant problems in China, not least the decision last week to devalue the currency.
For the uninitiated, this economic backdrop would appear like a very difficult one for investment markets, but nothing could be further from the truth.
In fact, on the contrary, it has been a very strong environment for equity markets in particular. However, many of us have considerably more exposure to equity markets than we might realise.
Namely, through the equity component of pension funds — this is significant in many cases.
With two thirds of the year now almost gone, it is turning out to be another pretty solid year for equity market performance.
Since the beginning of the year, the US S&P 500 has gained more than 10%; the UK FTSE 100 has gained 7%; the German DAX has gained almost 9%; the French CAC has gained 14.3%; the Japanese Nikkei has gained more than 22%; and the Iseq is up 24.6%.
These are pretty impressive figures, given all of the recent uncertainty about Greece and China.
The more impressive fact is that these gains are coming on the back of very strong gains since the beginning of 2009. Basically, in March 2009, despite massive turmoil in the global economic and financial system, markets bottomed out and commenced on a virtually uninterrupted upward path that is being maintained so far in 2015.
Since the first quarter of 2009, the S&P 500 has gained 207%; the FTSE 100 has gained over 82%; the DAX has gained 191%; the CAC has gained almost 94%; the Nikkei has gained 186%; and the Iseq is up 240%.
Very impressive gains indeed.
They have had a massive impact on the value of pension funds, provided of course risk-averse investors did not make a decision to avoid equity investment after the very poor performance in the couple of years up to the beginning of 2009. Unfortunately many have not got involved and have missed out on very significant potential gains.
Many lessons can be learned from the performance since 2009.
While economic fundamentals may look awful, the reality is that the value of a share in a company should reflect the discounted flow of future earnings in the company.
Obviously, the performance of the economy will have an important bearing on company earnings, but there are other important factors at play.
Once the crash happened, the corporate sector reacted aggressively and shed labour and cut costs very aggressively.
Furthermore, investors and markets took a view that global policy makers would do whatever it would take to re-ignite the global economy.
This expectation proved correct and despite problems in China and continued sluggish growth in the eurozone, the global economic cycle is recovering and looks reasonably healthy, although it is not without significant risks.
Another lesson is that long-term equity market investors need to take a long-term perspective.
They should not be scared out of markets every time there is a blip, and periodic corrections of at least 10% are not at all unusual.
If one is not prepared to live with such volatility and take a longer- term perspective, then one probably should not be investing in equity markets at all.
Having said that, the timing of entry and exit to and from the market can be a crucial determinant of how one fares.
However, it is very difficult, if nigh on impossible, to get the timing consistently right, so one needs to be able to take a long-term perspective and ignore the noise.
Of course the question now is if the markets will continue to go ahead in the near-term, given the magnitude of the gains made since 2009? I wish I knew the answer. I have concerns, but then again, I had concerns in January.
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