On Saturday evening I had a long conversation, oiled by highland water, with a learned friend about coping with deflation when what we are all used to is inflation. After judiciously examining the arguments from both sides we retired to consider the evidence. Sunday morning we agreed that both inflation and deflation bought their own problems but probably inflation was the greater problem. In essence if you have money held in a “cash” account of any sort allowing for the rates of interest being paid and inflation you are in fact accepting the reality that you are going to see a reduction in the real value of your funds. You will notice that I have not used the word investment as in truth putting funds into cash is not, in my view, investing. The argument against this philosophy is that there is less risk involved in a time of volatility in the markets. I must admit that for the most conservative of investors this may be a valid argument but even then it is possible to create a portfolio which is primarily in fixed interest but has an element of equity investment to fight against the penalties that inflation brings.
The markets have had a fairly torrid time this week mainly due to the fall in the value of tech stocks following the sectors huge gains over recent months. This is either due to profit taking or investors becoming alarmed at the price of these stocks. I think that if you hold a large percentage of your portfolio in these stocks it could well be time to take profit. There is no doubt that Covid 19 is still causing jitters around the world, not helped by what seems to be the stupidity of our fellow human beings and of course some of our bleeders, sorry leaders, who still think it is not a real problem. No doubt they will be judged by a jury of their peers in the weeks and months to come.
So, to the markets.