Since the start of the year we have experienced big falls in the global stock market and charity investment portfolios have suffered. Unless you have owned only government bonds and property, you will probably have seen a fall in the capital value of your assets. And as the oil price has fallen, so too has the profitability of some of the largest companies in the UK.
BP and Shell represent more than 8 per cent of the capital value of the UK stock market and more than 16 per cent of UK equity dividends, so it is obvious why investors get worried. A dividend cut from these companies in response to reduced profitability would particularly affect charities wanting to generate an income from investments.
But the oil price is not the only thing driving share prices lower. Investors are worried about the global economic outlook. There are fears that the US could drop into recession and worries persist about the Chinese slowdown. There is not much hard evidence to support the Armageddon scenario, and a number of investors believe these fears are overdone. But the market still falls.
There is a saying in the City that describes the power of downward momentum - "don't try to catch a falling knife". When there is uncertainty, investors prefer to sit on the sidelines. In times of market stress, the human characteristics of investors come to the fore.
Levels of panic in markets can be measured. A volatility index tracks oscillations, with rising volatility often corresponding to increased fear. More sophisticated indices combine a range of different data sources. The Credit Suisse risk appetite index tracks market sentiment and oscillates between euphoria and panic. Now it shows panic.
So how should we use this information? "Panic" is usually a good buying signal - a signal for the brave to begin investing, provided that the panic is not justified. So we must also take a look at economic and corporate fundamentals.
Oil price falls, though painful for commodity producers, can be positive for consumers as the costs of resources reduce. So far, so good. But there is an indirect effect of oil price weakness on markets as Middle Eastern sovereign wealth funds pull money out of investments to supplement their economies, no longer propped up by high oil prices. This creates downward selling pressure and exacerbates market falls. Policy tipping points also create uncertainty, and the currency markets have been volatile in the past 12 months, reflecting changing interest rate expectations.
But what we have seen since the beginning of the year is, in my view, a market correction, not a serious deterioration in the global economic environment. These periods of sharp market moves understandably make headline news, but it is important to remember, first, that equities can be a volatile asset class and, second, that equity investing is a long-term business. For charity investors taking a long-term view, volatility can give rise to opportunities. In times of panic, markets tend to sell off across the board. The result is that solid businesses with good prospects for growth trade at lower valuations than before, offering an opportunity for disciplined long-term investors.
Kate Rogers is head of policy at Cazenove Charities