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Our
Clients

Financial
Planning

Investment
Philosophy

About
WealthFlow

Latest
Comment

Contact

Our
Clients

Financial
Planning

Investment
Philosophy

About
WealthFlow

Latest
Comment

Contact

2nd
Aug
2023

Big news small impact!

Very often it can feel like there is nothing but bad news in the papers and all around us. However, when it comes to individual stock prices what does bad news in the paper actually mean for you? I was recently asked what my thoughts were on the impact of a scandal affecting a CEO and how this would affect a portfolio. Whilst it is natural to be concerned when a large company’s stock price appears to be in free fall let us examine what the impact might be on an actual investor.

As long as you take a diversified approach, investing globally, and don’t engage in the risks of stock picking or market timings you will likely have a portfolio that, very broadly speaking, is representative of the global universe of stocks.

For our little thought experiment, I am going to take the company that is currently 50th in terms of size (market cap) on the FTSE 100 index (probably the most well known in the UK). It happens that on the day of writing this it is JD Sport. JD Sport currently has a valuation of £10.84 Bn1. What would happen if those billions vanished?

If JD Sport went bust tomorrow and was valued at £0 (unlikely as they would still have saleable assets) what would the impact be on your portfolio.

Well, let us look at our global investor. To use round numbers let us say they have £100,000 in their portfolio. Let us also say they are fairly average in terms of their attitude to risk and have opted for a portfolio split 50:50 between equities and bonds/cash/government debt.

How much would the loss of JD sports cost them?

Based on the value of global market capitalisation from the world bank of £69.74 Tn2. This would mean a loss of 0.0155% or in monetary terms for our £100,000 portfolio £7.77.

Whilst the news we hear can make it feel like a single company is having ripple effects throughout the world, for those with a diversified approach it is important to remember that something impacting a single company will likely have a minimal impact on your overall portfolio.

1) London Stock Exchange
2) World Bank

Patrick Christie
Financial Planner – WealthFlow
patrick.christie@wealthflow.com

 

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

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© 2024 WealthFlow Group Limited
All Rights Reserved | Privacy | Cookies Policy

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.