Jeff Prestridge: my message to investors

As markets continue a chaotic period, interactive investor columnist Jeff Prestridge has some words of encouragement for investors, and shares the ingredients of a profitable investment strategy.

These are difficult times for those who are building long-term wealth by investing in the stock market – or are using withdrawals from investments such as pensions and ISAs to support their journey through retirement.

Their wealth is literally shrinking before their very eyes as key stock markets keep falling – and falling. Should they stick with the investments they have, twist or run for the proverbial hills? It’s a difficult question with no definitive answer.

What is obvious – and rather worrying - is that some stock markets look as if they are in free fall as the world economy looms on the edge of recession, interest rates are rising and geopolitical tensions remain red hot.

The US stock market as measured by the S&P 500 index, has fallen by over 20% since its high of early January. Such a sharp fall from a previous peak – 20% or more – is defined as a bear market. Not a bull in sight. Nasty bears everywhere.

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Some stocks in the US, brands that are part of our everyday life, have taken a proverbial battering. Shares in ‘tech’ giants such as Amazon (NASDAQ:AMZN) have fallen nearly 40% this year.

Such share price corrections have in turn impacted on the performance of some of this country’s most-popular investment funds and stock market listed investment trusts. For example, Scottish Mortgage (LSE:SMT), the flagship fund of Edinburgh investment house Baillie Gifford, has had a torrid time.

This FTSE 100 stock, with a market capitalisation of £10 billion, has seen its share price nearly halve this year – and fall some 44% over the past year. It has been buffeted by sharp corrections in both the US and Chinese stock markets. Amazon is a top 10 holding as is electric car manufacturer Tesla (NASDAQ:TSLA) (its shares are down by more than 40% this year).

Yet some Baillie Gifford-run investment trusts have performed even worse. Over the past year, Baillie Gifford US Growth (LSE:USA), Edinburgh Worldwide (LSE:EWI) and Baillie Gifford European Growth (LSE:BGEU) have all registered bigger share price falls than global fund Scottish Mortgage.

Although Fundsmith Equity, the £23.7 billion investment fund run by legendary investment manager Terry Smith, has fared better, this global fund has still recorded losses in the year to date of around 17%.

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Thankfully, the current mayhem in the US stock market is not reciprocated here. Indeed, the FTSE 100 has fared much better, although it’s still down on the start of the year. Its stronger relative performance is a result of the fact that the index has a plethora of oil, gas and mining stocks which have all benefited from rising prices. The likes of BP (LSE:BP.), Shell (LSE:SHEL) and mining giant BHP Group (LSE:BHP) have all recorded double-digit share price gains this year.

Yet making money from the UK stock market remains tricky as Nick Train, manager of investment trust Finsbury Growth & Income (LSE:FGT), made clear in his latest commentary a couple of days ago on the £1.7 billion trust.

Train says he is on the verge of ‘kicking’ his proverbial cat as a result of the market’s refusal to acknowledge the investment worth of some of the hugely cash generative businesses he holds. The likes of drinks giant Diageo (LSE:DGE) and London Stock Exchange Group (LSE:LSEG).

Train is bewildered that a company such as drinks manufacturer Fevertree Drinks (LSE:FEVR) (a key holding in the trust) can confirm it is on course to hit business growth and profitability targets for its current financial year, only for the shares to keep heading on a downward trajectory. They’re down some 50% this year to date.

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Interestingly, and this is key, Train’s reaction to Fever-tree’s plunging share price is to buy more of the shares. As Train says: ‘The multi-year opportunity Fever-tree has to build on its existing position as the world’s number one premium mixer brand seems as clear and exciting as ever.’

It’s easy for fund managers to buy into market weakness, less so for investors when it’s their own money they are putting at risk. But my message to investors is not to give up on building long-term wealth.

Now is not the time to pull the plug and cancel monthly subscriptions into ISAs and pensions, however tempting it may be in light of the prevailing cost of living crisis. And now is certainly not the time to disinvest.

Of course, it’s essential that your ISA and self-invested personal pension (SIPP) portfolios are broadly diversified – across funds, stock markets, asset types and investment styles.

But, if you’re currently investing into an ISA or pension on a monthly basis, and your investment horizons are long-term, please keep doing so.

As Mr Train says: buy into weakness. Long term, I am sure it will prove a profitable investment strategy.

Jeff Prestridge is a freelance contributor and not a direct employee of interactive investor.