Pensions - A Correction

There has been an official correction in the Nasdaq. What's next for our pensions?

Episode Transcript

(00:00):
So there's been an official correction and this affects our pensions. Now depending on what point we are with our pensions, this could be a good thing or it could be a bad thing.

(00:14):
So the correction relates specifically to the NASDAQ where many of the large tech companies in the world are listed.
And in this official, a market correction is triggered when a market drops by more than 10% since its recent peak and this occurred yesterday and actually things got worse today.
The decline in the NASDAQ has continued below 10% since that peak. So how can this be a good thing for some people's pensions?

(00:43):
Well, if you're in the accumulation of fees for your pension, meaning you're actively paying in to your pension, then each time you contribute to your work pension, pay money into your pension, or a sip even, then it's likely that the company that holds your pension's money will then invest that into stocks and shares.

(01:05):
And when stock prices are high, you're paying a lot of money for a share. When it's low, you're paying lower. But so when a correction occurs, the price has dropped by at least 10%.
And that means you get more shares for your money, which is a good thing.
Now, this is of course reliance on the value of them then increasing again, which is a fundamental pattern of the markets that what we've relied upon this happening consistently since the markets were formed way back in was it 1602?

(01:41):
I think it was the East India Company back then. And although the world feels topsy turvy now, there's been a lot of turbulent events in the last 420 years, and the markets have always recovered.
I mean, we're talking World War One, we're talking the Spanish flu, we're talking the Great Depression, we're talking World War Two, we're talking COVID-19.

(02:05):
I mean, that putter in context and Trump's shenanigans don't seem as important when you put them in that context, do we?
So the basic principle of buying low works well if you're building a pension. However, if you've stocked accumulating your pension and now start de-cumulating, which in English means spending your pension, then if stocks you own are at a lower value when you sell them to provide you cash to live on,

(02:34):
then this means less money in your pension. And this is particularly bad if you sell all your stocks in one go to buy, say, a pension annuity.
So the US market, a dragon arrest of the world markets down with them at the moment. And I think that there's a lot more to this than just Trump's tariffs.

(02:56):
This drop for me is related to changing changes in how the markets are viewing AI stocks. And if you followed my channel for some terms, you will know that I have a big downer on US tech stocks due to their ludicrous price to earning ratios for tech stocks.
I also have some personal experience that kind of forms my view on where we are with tech stocks.

(03:19):
So back in early 1999, I was working with PwC and my role back then was to order.com CEOs who were floating their business on the stock market.
And I was there to give a view on the information they provided to investors around their performance, their web metrics, all that kind of stuff.
I became really jaded about dot com stocks back then, because when I interviewed these different CEOs and different companies, they all had a common message, which was actually Eric profitability is not what we're focusing.

(03:52):
We're actually planning an exit strategy. So what they were saying there is that they didn't expect the business to do well or even to last for a long time.
They expected the share price to shoot up based on the lack of knowledge of the investors in this new dot com industry.
And it was new back in 1999. Now, they were then going to bail and take their cash with them.

(04:17):
But things are different this time. It's not like that now. But one thing is the same. Stock valuations are still based on shares being bought by people who don't really understand
where the continued growth from AI will come from.
I'm talking companies as NVIDIA and AMD, etc. And my view is that AI is completely transformative.

(04:40):
Transformative will have a huge amount of value to the market. What I don't agree with is that the likes of NVIDIA, AMD, even Google, Apple, Microsoft will be the biggest winners here.
So when the gold rush started in America, most of the early money was made by the companies who made the picks and the spades to dig the gold up.
Now, this didn't last very long, though, but the value of gold still continues on.

(05:06):
Likewise, for those that make these chips and the data sensors that use them, they might make a quick book and they have made a quick book at the start.
But the real money for me will be made by companies that use these services to improve their own productivity.
Not those that are making the tools such as the chips and the data sensors, but the people who are making real business use of it.

(05:32):
And again, I think there's a misunderstanding of where this new technology is headed.
And that's driving unsustainable growth in the wrong type of companies.
In my last video earlier this week, most of the comments were that such things as the S&P 500 and the Welder indices, they're going to recover quite quickly.
And I 100% agree with that. They don't do it since 1604, you know, they always have.

(05:58):
But others have said, no, I'm buying the dip. I'm going heavy on NVIDIA. And that's the bit that gets me worried.
So most of these companies who I audited back in 1999 or flying high, they don't even exist now. They completely disappeared.
Now, when the market catches on that they've been chasing the wrong hair in the race, things move on quickly.

(06:21):
As in the year 2000, the Nasdaq crash proved.
Anyway, it's my Friday rant. Hope any of this was useful.
Let me know what you thought or in the comments. I love reading them. And until next time, have a good weekend.