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Beware the bear

I suspect that through his column in Money Marketing, Julian Gibbs has been responsible for selling more stockmarket-linked bonds than any other person.

I also suspect that he recommended the very products which he refers to in this week&#39s column that have recently matured without returning investor&#39s original capital (Money Marketing, April 3).

He does point out, however, that investors would have lost more if invested directly in the stockmarkets. I am sure they feel happier knowing that.

Undaunted however, he continues to recommend these investments, convinced that the stockmarket cannot fall 40 per cent from current levels.

I would suggest that we are in a primary bear market and, if this follows others in the past, then it is quite possible that the stockmarkets could fall 40 per cent from current levels.

With the FTSE 100 today at around 3,800, a 40 per cent fall would take it to 2,280. This would be a 67 per cent fall from its high at the beginning of 2000. Serious bear markets can fall by 75 to 90 per cent and one only has to look at Japan to confirm that it is currently 80 per cent off its peak of over 13 years ago.

It is possible that markets will not fall a further 40 per cent but it is probable that they will. Sadly, it is these probabilities that were not spelt out to clients when these products were marketed and it is the 8 to 10 per cent income that gets all the emphasis.

As JK Galbraith once said: “Financial genius is a short memory in a rising trend.”

Roger Harris

Certified financial planner, Oadby, Leicester


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