“Buy on the sound of cannons, sell on the sound of trumpets.”
So wrote financier Nathan Rothschild, back in 1810 — words I’d forgotten, until an article in the Financial Times mentioned them the other day.
More recently, of course, Warren Buffett famously advised investors to “be fearful when others are greedy, and greedy when others are fearful.”
Legendary contrarian value investor Sir John Templeton, meanwhile, observed that “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
A case in point
All of which I mention because markets have tanked since Russia invaded Ukraine on 24 February. In early February, the Footsie reached 7,672, its highest level since February 2020, just before the pandemic-induced swoon to a level just below 5,000, on 23 March 2020.
Today, as I write these words, the Footsie opened at 6,950 — a fall of 9.4% in 12 days.
And who knows what the future will bring?
One thing is sure: with oil at US$140 a barrel, rocketing natural gas prices, and wheat prices set to soar as supplies from Russia and Ukraine (the world’s fifth-largest wheat exporter) dry up, the cost of energy and foodstuffs looks set to soar. So price inflation is set to climb still higher: the latest figures that I’ve seen suggest that inflation hitting 10% is a plausible possibility.
And yesterday, someone mentioned the word ‘recession’ to me. To those of us who remember the 1973 oil shock, that too seems a far from implausible scenario.
So with markets heading south, and some heavy economic weather on the way, a lot of companies’ share prices are suddenly ‘on sale’, and priced at levels that would have had us salivating a few brief weeks ago.
And I know that some of you will be feeling uncomfortable at buying in a market that is only this low because of the carnage and chaos that we see enacted on our television screens.
My message: don’t be.
In short, the shares that you’re buying won’t have been sold by distressed Ukrainians — or distressed Russians, for that matter — and your purchase of them won’t adversely impact Ukrainians or anyone else.
Except, of course, yourself — if it turns out that those shares don’t turn out to be a wise choice in the first place.
Selling equals buying; buying equals selling
Let’s consider why shares are available for purchase at all. After all, shares aren’t magically conjured out of thin air: they’re available in the market because someone — a fellow investor — has sold them.
Why, exactly, have they sold them? For any one of a myriad of reasons.
They needed cash. They no longer felt so bullish — or even sanguine — about the prospects of the business or the sector in which the company in question operated. They felt uncomfortable with present market conditions and uncertainties. They wanted to switch a portion of their assets into gold, or land, or some other asset class. Who knows?
Or — quite simply — they expected the market to head further south, and are selling now in order to buy back more cheaply, later.
It’s the City of London, not the city of Kyiv
And who, exactly, has sold them? You’ll never know. It could — as I say — be another investor just like you. Or an investment fund. Or pension fund. Or investment bank. Or professional trader.
But not — to drive the point home — the people you see fleeing Russian aggression on your television screens.
So don’t feel guilty. Buying shares in today’s markets isn’t a guilt-trip.
Even so, I reckon that sending a little of your eventual profit Ukraine’s way, as a charitable donation, would be a decent thing to do.