It's always darkest before the dawn - a stockmarket recovery?

By Meera Patel | 14 Aug, 2008 

If this year is anything to go by, it serves as a reminder that volatility has always been a feature of the stockmarket. It doesn’t help when news headlines report that billions of pounds have been wiped off the stockmarket. It is, however, worth bearing in mind that the stockmarket has historically always recovered and the falls have often been followed by significant recoveries.

One memorable event was Black Monday on 19 October 1987. The FTSE 100 Index fell sharply following losses in the US market. By the end of October the UK market had fallen by almost 20%. Investors soon regained confidence and the market started to recover and by February 1989, the FTSE 100 was back to levels prior to Black Monday.

Another event was the Russian default crisis in 1998. This was effectively another credit crisis where the Russian government defaulted on its debt to foreign governments. The FTSE 100 fell almost 20% between August 1998 and early October, but it soon recovered by the end of November.

I am sure many investors will remember the burst of the technology bubble which began in March 2000 and lasted longer than some of the other stockmarket events. Between March 2000 and March 2003, the FTSE 100 fell by 40%, which was then followed by a recovery until July 2007. Between March 2003 and July 2007, the FTSE 100 was up 79%.

It is impossible to pin point exactly when the next recovery will take place. It is, however, worth remembering that despite stockmarket volatility, long term investors should be rewarded in the right investments. While as with all investments, our favourite funds will be subject to volatility. In the Wealth 150 our list of favourite funds in each sector, we aim to identify long term winners through our fund selection and hope these funds deliver out performance for our clients.