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Stay Safe

By Gareth Horsfall - Topics: Italy
This article is published on: 11th March 2020

As I write this E-zine financial markets are entering free fall due to the events surrounding coronavirus in the last few weeks, no more so than in Italy.

It certainly seems a very difficult and strange time to be living in, and clearly is spooking the financial sector. However, in this E-zine I want to offer some rational thought about this and why this is neither a time for panic nor something that we should think is out of the ordinary. It is certainly unprecedented from a health point of view and I hope you can remain safe during this time, but it is just another ‘unpredictable’ event from the perspective of our money and will have the short term effect of scaring investors.

We should all think back to the events of 2008 / 2009 and remember the thoughts and feeling we had when the world’s media told us that we were heading into a financial crisis of unforeseen proportions and that Armageddon would prevail. This is no different, from a financial point of view, and should be thought of no differently. It will throw up opportunities for those who are sitting on cash and should be a time of reflection and restraint for those of us who are fully invested.

I would like to add that I do not wish to minimise the effects of this virus in any way. I understand that there could be many at risk, myself included: I have suffered from asthma all my life, and we also have members of the family who are at very high risk of developing severe problems from the virus if everything we are to believe is true.

Equally, what I am about to write should in no way be taken as a conspiracy theory and born out of superstition. I am going to write based on historical facts and reflect on the behaviour of humans. We have tended to exhibit and repeat the same patterns of behaviour in very similar circumstances throughout history.

EXTRAORDINARY POPULAR DELUSIONS AND THE MADNESS OF CROWDS

EXTRAORDINARY POPULAR DELUSIONS AND THE MADNESS OF CROWDS
This is the title of one of my favourite books written in 1841 by author Charles Mackay.

It is one of my favourite reads because it is a historical account of the typical behaviour that we. as humans, exhibit

repeatedly. There are many examples throughout history, which are discussed in great detail in the book and which I will come to in a moment, but let me ask you:

Just because all the governments around the world, all the doctors, all the councils and all the media say that coronavirus could be the greatest threat to mankind, does this make it true?

This might seem a rather provocative statement to be making, but it does bear thinking about for a moment. Some suggest that the coronavirus may be no more serious than the regular flu, although some estimates suggest it may be worse. The facts to date cannot prove either way. Clearly, given that we have no idea how it will manifest itself, it makes sense to adopt urgent measures but it may turn out to be no more than another SARS / MERS/ Ebola (interestingly Ebola virus kills 9 out of 10 people who get infected, but the alarm over that was nowhere near the panic over coronavirus). In addition, we have had panic surrounding mad cow disease, swine flu and avian flu. None of these have gone on to prove to be any more than a passing moment of concern and affected a small proportion of the population overall.

The book I have mentioned above is well worth reading, if you have the opportunity, and explains how as humans, we tend to exhibit behaviours which reinforce one another. In our case, the government creates the alarm, therefore the doctors must respond with equal alarm and response / preparation ( they are afterall paid by the government), the media equally react in an alarmist way because it helps them to sell their services, the people become alarmed and start stock piling because they fell under threat. The problem is that is is now hard, in a communal state of panic or enthusiasm, for one to stand out and say ‘maybe this is not the case’, because they are ostrazied or ridiculed and called out for being unreasonable.

But don’t just take my word for it.
Let’s look some of the evidence:

GREAT RECESSION 2008 / 2009

Merely 10 years ago we had a very similar experience, when financial markets collapsed after the bundled mortgage debt crisis that led us into the crash of 2008 / 2009. However, isn’t it interesting that leading up to this crisis, economists and central banks told us that the world was in permanent state of growth and could likely maintain 3% per annum; estate agents told us that property prices would keep on rising; even banks and financial institutions believed the hype and continued to offer highly risky investments to risk averse investors because they believed that stability was the new norm:

The Guardian 30th January 2007: Still going through the roof – the property boom goes on
Fortune 500: July 12th 2007: The greatest economic boom ever
Harvard Business School: 27th December 2007: Chimerica’ and the Global Asset Market Boom

No one could challenge the norm at the time, for fear of being branded the one who wanted to end the status quo. The same logic applies to financial exuberance as it does to fear about a global pandemic. Just because everyone says it will be this way doesn’t necessarily mean it will be (if you haven’t seen the film, ‘The Great Short’, then I would suggest it as a great example of the treatment of those who go against the masses).

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

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TECH BOOM 2000

For those of you with a memory of the events surrounding the financial market collapse of 2000, you might remember that running into the collapse we were told that the internet would change our lives forever and in ways that we could not imagine. The theorists were absolutely right. But unfortunately, they had not thought to add a timeline to that prediction. Financial market exuberance took over followed by collapse. At the time economists, central banks, financial institutions and pundits in the media bought into the same rhetoric, that the internet would reshape our lives immediately. Little did they know that it would take about another 10 years for the effect to happen. Just because everyone says it will be this way doesn’t necessarily mean it will be.

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

Contact Gareth Horsfall direct about: "Stay Safe"






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WITCH MANIA

In the mid 1400’s Europe was fixated with the idea that every calamity that befell a person was the cause of a witch. Here is a passage from the book:

“But in the early days of ‘little knowledge’ this grand belief because the source of a whole train of superstitions, which in their turn, became the fount from whence flowed a deluge of blood and horror”.

The writings are not a million miles removed from the fear surrounding coronavirus. In this case, just because everyone said it was true didn’t mean it was. More horrendous is that those who challenged the belief were deemed to be witches themselves and didn’t live to see their reality come true.

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

Contact Gareth Horsfall direct about: "Stay Safe"






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THE CRUSADES

I won’t go into the historical account of how the Crusades came about, but we can reflect on a passage from the book, which in some ways mirrors what we see today:

” Fanaticism and the love of battle alike impelled them to war, while the kings and prices of Europe had still another motive for encouraging their zeal (in the case of the Crusades it was money and land grab). Policy opened their eyes to the great advantages which would accrue to themselves…….Thus every motive was favourable to the Crusades. Every class of society was alike incited to join or encourage the war; kings and the clergy by policy, the nobles by turbulence and the love of dominion, and the people by religious zeal……skillfully directed by their only instructors”.

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

Contact Gareth Horsfall direct about: "Stay Safe"






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POPULAR FOLLIES OF GREAT CITIES

This phrase is to illustrate the power of the word to spread far and wide and for superstition and hypothesis to become fact:

“And first of all, walk where we will, we cannot help hearing from every side a phrase repeated with delight……by men with hard hands and dirty faces – by saucy butcher lads and errand boys – by loose women – by hackney coachmen, cabriolet drivers, and idle fellows who loiter at the corners of streets….it seems applicable to every circumstance, and is the universal answer to every question; in short, it is the favourite slang phrase of the day, a phrase that, while its brief season of popularity lasts……throws frolicsomeness over existence and gives them motivation to talk as well as their more fortunate fellows in a higher stage of society”.

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

Contact Gareth Horsfall direct about: "Stay Safe"






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Expat Money and Finance Articles

MONEY MATTERS

So, to bring the subject of this E-zine back to money matters for a moment I would like to write that what we do and how we act now is of utmost importance to the long term health of our personal finances.

Most people will be in one of two situations right now. The first are those who, for whatever reason are sat on cash which available for investment. Whilst financial market collapses might seem the worst time for investment they are quite the opposite. They are the greatest opportunities. The opportunity to see substantial gains on investments when the volatility settles. It is in no way easy to invest when market indicators are all red and the financial media are professing Armageddon, but they are wrong. I know this from experience because I had the fortune to have some cash in 2008 when the financial crisis happened. You have to get through the volatility and the psychological reluctance, but long term returns on most assets during these times are substantially greater than at other times.

However, a word of caution. Financial crises can create imbalances in certain sectors. It is wise not to just jump into any asset during this time, but to invest in a well balanced portfolio based on your own attitude to investment risk.

The other class of investor is those who are fully invested (I include myself in this category). We are investors who have been invested and should remain invested during these periods (not accounting for anyone who must disinvest because of cash needs). Panic is not an option. Level headedness must prevail. And if you are unsure of what to do then you can always pick up the phone and speak with me. This is my 5th financial market crash in my career. I have coached many clients through periods like these and suspect I will have to coach many more, so if you are in doubt then please do get in touch and we can talk about how it affects your personal situation.

If you are a client who has invested capital through one of our selected group of asset managers then please feel comforted that they have everything under control and have made provisions for these unforeseen events (i.e. investing a proportion of the assets in gold and other low volatility safe haven assets). What we are going through is quite normal and I suspect will be something we look back on with great interest in the not so distant future. In the meantime, if you yourself, or anyone you know is at risk from the virus please take all measures to stay safe.

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

Contact Gareth Horsfall direct about: "Stay Safe"

The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.