Significant global events and their impact on your investments

Every so often, an event will take place that shifts the entire market. An event that is so big, so unpredictable and so wide-ranging that no one will emerge completely unscathed. From global market crashes, to fund closures and stock market anomalies, every investor should be aware of how macro conditions can impact their investment portfolio.

Here are some recent events that rocked the markets and impacted individual investors…

Covid 19 Pandemic (2019 – Present)

Covid-19 cases were first identified in Wuhan, China in late 2019, amid warnings that it was one of the most contagious diseases the world had ever seen. By March 2020, global lockdowns were in place in many countries, alongside rules around mask wearing and social-distancing. This produced a significant, negative impact to the global economy which declined by more than 3% over the course of 2020.

For stock market investors, the impact was even worse. Between 19 February 2020 and 23 March 2020, the S&P 500 lost approximately 34% of its value. That means that if you had invested £100 into an S&P 500 tracking fund on the morning of 19 February 2020, by 23 March you would have been left with just £66. However, by 24 August 2020, the S&P 500 had recovered, and your £66 portfolio would have been worth just over £100 once again.

GameStop (2021)

GameStop is a bricks and mortar video games store chain that was struggling against growing digital distribution and the impact of Covid-19 pandemic. This made it an ideal target for short sellers – investors who borrow then sell shares in the hope that the price will drop, allowing them to purchase them outright at a lower cost.

The exploitative narrative reached the online social news aggregator Reddit, who banded together under the r/wallstreetbets page to buy GameStop stock and commit to holding… no matter the cost.

This led to sky rocketing share prices for the flagging company, fuelled by anarchic retail investors who saw an opportunity to force hedge funds into bankruptcy.

On 11 January 2021, you could have bought a single stock in GameStop for just $19.94. By 29 January GameStop’s share value had risen to a massive $325.

But for those investors who waited too long before investing, the losses were just as dramatic. If you had bought one share in GameStop on 29 January at $325 per share, by February 4 – less than one week later – your investment would have been worth just $53.50. This was largely due to the intervention of brokerages such as the Robinhood app, which acted quickly to stop users from buying the stock, ultimately shielding the hedge funds from making market-moving losses and incurring the wrath of thousands of angry traders.

Elon Musk and Tesla (2018 and 2020)

Elon Musk is a divisive figure in the world of business. He made a name for himself as part of the PayPal IPO which generated $70.2 million (m) and was eventually bought by eBay for $1.5 billion (bn). Musk joined Tesla in 2004 as chairman and by 2020 the company had secured a $1 trillion (trn) market cap.

However, his use of Twitter landed him in hot water when a tweet in August 2018 saw him ‘joke’ about making Tesla private at $420 per share. This resulted in a rush of speculation that Musk was in secret talks to sell Tesla, and resulted in a $20m fine to Musk from the SEC.

You would think that this price tag would be enough to teach him a lesson, but he did the exact same thing again on 1 May 2020 when he tweeted that “Tesla’s stock price is too high imo”. In response, Tesla’s stock price fell from $156.37 on 30 April 2020 to $140.26 the following day – a 10.3% fall. However, by 6 May the stock price had recovered, and by 1 June 2020 the stock was trading at $179.62 – an increase of more than 12% from 1 May.

Woodford Fund (2019)

Neil Woodford made a name for himself as a fund manager in the aftermath of the dot com bubble. He founded Woodford Investment Management (WIM) in 2014 and quickly launched its flagship Woodford Equity Income Fund. The fund attracted a record-breaking £1.6bn from investors and hit £10bn at its peak.

But WIM ran into issues after restructuring in 2016 and the fund’s performance began to suffer soon after. Investors begin withdrawing in February 2018, and by June 2019, Woodford made the decision to gate the fund, leaving 300,000 individuals unable to access their assets. The business ultimately went into wind down, leaving many investors unable to recoup their capital investments.

The Global Financial Crisis (2007–2008)

This was a worldwide economic crisis that resulted from a perfect storm of economic events in the US. These included financial institutions exposing themselves to excessive risk, increases in borrowing, and lax regulation.

It was devastating for the US as housing prices fell, the economy was placed under strain, and behemoths like Lehman Brothers collapsed. Investors were hard hit when US borrowers were forced to refinance their loans. This led to a loss of confidence in the world’s leading economies, causing stock markets to crash and putting pressure on banks to shore up cash to avoid going bust.

Over the course of 2008, the Dow Jones Industrial Average shed 33.84% of its value. That means that if you had invested £100 in the Dow Jones on 1 January 2008, you would have been left with just £66.16 by 31 December. However, the following year the Dow Jones was up by 18.82%, and in the four years between 2009 and 2013, the market continued to grow again, meaning that investors who lost money during the 2008 financial crisis would have recouped their money and started earning interest again within five years of the crash.

Dot Com Bubble (1995-2000)

The rise of the internet led to the overvaluation of many US online companies, known as the dot com ‘bubble’. Positive press led to an explosion of start-ups and a fear of missing out on a digital goldrush as the internet became commercialised and monetised.

The bubble burst in 2000 in the wake of the infamous AOL/Time Warner merger. Multiple companies collapsed and many investors were burned amid panic selling. This caused the market to shed 10 per cent of its value and leave many missing out on leading picks such as Amazon and eBay that continue to perform well today.

Wall Street Crash (1929)

A historic market crash saw the value of shares collapse across the New York Stock Exchange (NYSE) and led to the Great Depression.

It all started in October 1929, when the NYSE was riding high after a nine-year bull market. Stock market investing had become popular among Americans of all backgrounds, and despite troubling signs of an economic slowdown, the thinking was that the stock market would just keep on rising forever.

Even when steel production stalled, automobile sales declined and consumer credit rose, investors kept on putting their money in the NYSE. On 29 October 1929 – AKA Black Tuesday – traders could no longer deny that the market was on the brink of collapse. Over the course of one day, 16m shares were traded and $30 bn was lost – twice the value of the national debt. Thousands of investors were bankrupted amid the panic selling, and a ten-year depression followed.