Smith says these huge daily swings, known as ‘volatility’, generally only last for a few months based on prior occurrences. “And we’re probably six weeks into it now.”

He says the big daily swings we’ve been seeing of up to 10 per cent up or down are unprecedented, even compared to the 1987 share market crash, and the global financial crisis (GFC) in 2008.

Shares have gone up or down by at least 3 per cent 19 times this year already and 90% were in March alone. That’s more than the combined total of the past eight years. With some years, like 2012-14, there were no large swings at all.

Mum and Dad investors saw their KiwiSaver balances and share fund units drop over the past few weeks, then start to bounce back in recent days.

“Volatility is very scary, very unnerving, and very hard to manage because of the constant flow of news. It can be very overwhelming, but we do know that volatility doesn’t last,” he says.

“It settles into more normality once buyers emerge and liquidity improves.”

Some see opportunities

Many investors who sat on the sidelines over recent months, saying shares were overpriced, are now seeing their chance to buy quality businesses at cheaper prices, he says. CMC Markets has seen huge numbers of accounts opened, and brokers are busy.

“When volatility spikes, there’s an immense amount of opportunity for investors and traders.

“Many investors have been forced to sell when prices are low. You see a lot more forced selling of positions in the market, people panicking, and funds having to cash up and close positions. That’s creating more volatility.”

“People always say: ‘The market is too expensive. I’ll wait for a pullback in the market.’”

He says this is the pullback they were waiting for. “We’ve had a near 40 per cent pullback in the US market. There’s only been four other times when the market has fallen further.

“The time to invest is those moments, if your time horizon is long.”

These are the times when you can buy world-class companies like Disney, Apple, Microsoft or Boeing. Their prices make them much more attractive, he says.

All asset classes hit

It’s not just the share market that’s been hit by volatility, says Smith. There is no safe haven. Even those with money in conservative funds mainly in bonds are hurting.

“What’s amazing now is that we’re seeing volatility across all asset classes, not just stocks – in currency, gold, oil dropping 30 per cent in one day in the midst of this, dramatic falls in commodities, and a 4 per cent daily move in the New Zealand dollar.”

Every bear market and every pullback surprises people, but they are normal in cycles, he says.

“The stock market is always forward-looking, so even when the news headlines have been terrible, the stock market has rallied in the past week. Some risk-takers have been buying shares in cruise lines, hotel operators, casino operators, and airlines. Other investors will be just riding out this period and not over-trading.

“The market’s always forward-looking and will be recovering well before we see the end of Covid-19. By the time there’s a recovery on Main Street, the share market will already have recovered.”

He says those pulling out their investments may have missed some of the biggest trading days of the year.

“If this was the bottom, they’ll have missed out on three big days of the stocks rallying.

“It depends always on investors’ need for capital and income now.”

Story by Brenda Ward

Published 1 April 2020

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