Noel Whittaker: Despite market chaos, don’t believe the doomsday hype

It’s been chaos on the markets this week — more like a Netflix thriller than a finance report. One day it’s panic, the next euphoria, then straight back to fear.

Headlines screamed “meltdown”, “bloodbath” and “$9 trillion wiped off the boards”. One of the sharpest plunges in history was followed by a record-breaking surge — only to be flattened again by yet another slump. Volatility is back with a vengeance and investors are gripping their seats.

I spent the week giving talks to well-resourced senior citizens on Sydney’s North Shore, reminding them that I’ve been investing for 60 years, and that crashes are nothing new.

One of the earliest and most dramatic crashes of my investing life came in 1974, when a severe credit squeeze hit the country.

Interest rates soared, inflation was rampant and banks virtually stopped lending.

It became almost impossible to get a loan, which paralysed the property market and strangled business activity.

The next was 1987, when Australia was swept up in the global share-market crash known as Black Monday.

The All Ordinaries plunged more than 40 per cent in just a few weeks, wiping out years of gains and decimating retirement savings. The index fell from over 2300 to under 1400 almost overnight. Just three years later, in 1990, it was the property market that took the hit.

In Melbourne, for example, a commercial building once valued at $60 million was suddenly worth $6 million.

Over-leveraged investors were wiped out and banks scrambled to recover loans that were suddenly drastically under-secured. The crash sparked a broader recession.

Fast forward to 2000, and while we dodged the predicted Y2K bullet (where there was worldwide fear of computer malfunctions as a result of the leap from 1999 to 2000), the dot-com crash lasted until 2002.

The US market indices NASDAQ fell a staggering 78 per cent as internet hype gave way to harsh reality.

Hundreds of tech companies vanished — but a few survivors, including Amazon and Apple, emerged stronger and went on to become juggernauts.

It was a classic case of short-term pain leading to long-term transformation.

The global financial crisis of 2008 was the next great storm.

I remember walking through Threadneedle Street in London at the height of the panic, watching stunned faces, and posters showing burning Ferraris declaring: “Capitalism is finished.”

Banks collapsed, credit markets froze and Australia braced itself for impact. But we pulled through.

Then, in early 2020, the COVID-19 pandemic hit — and lockdowns froze economies.

Markets fell off a cliff. Australia’s All Ordinaries dropped 37 per cent in just a few weeks, super balances shrank, businesses shut their doors and fear spread like wildfire.

Then, just as swiftly, recovery began — markets bounced back long before the headlines did.

Each of these episodes felt, at the time, like the end of the world.

And yet, here we are, still standing, still investing, still navigating uncertainty. Volatility is a feature, not a flaw, of the financial system. History reminds us even the deepest valleys are eventually followed by recovery.

Let me finish with a Chinese fable — a perfect parable for the times we’re living through.

A farmer’s horse ran away and the neighbours came to commiserate. “How terrible,” they said. The farmer replied: “Maybe so, maybe not.”

A week later, the horse returned, bringing three wild horses. “How wonderful,” said the neighbours. “Maybe so, maybe not,” the farmer said.

Soon after, the farmer’s son tried to tame one of the horses, was thrown and broke his leg.

“Disaster!” cried the neighbours. “Maybe so, maybe not,” the farmer said. Then the army came through the village, conscripting all able young men — but left the injured son behind. “How lucky!” the neighbours said. The farmer once more replied: “Maybe so, maybe not.”

The fable begs the question: where does the story end?

ASK THE EXPERT

Q We’re looking at buying an investment property in our self-managed super fund. There will be no borrowing. When the fund goes into pension phase, can the ownership of the house pass from super as an in-specie transaction rather than cash?

A Any investment decision made by the self-managed fund must always be in line with the sole purpose of providing the member with retirement benefits. That said, lump-sum withdrawals from superannuation made after a condition of release has been met can be made, either in cash or in-specie, which can be an investment property. This is, of course, provided it is done at market value and on an arms-length basis.

* Noel Whittaker is the author of Wills, Death and Taxes Made Simple and other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions