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Grin and bear it

It may seem hard to accept after the horror of what occurred in America but stockmarket collapses are not caused by events – they are simply helped along by what happens.

At the bottom of any market, there are always events which cause fear and confusion. Some readers may remember when markets collapsed for what appeared to be no reason at all in 1987.

Of course, after the event, everyone can tell you why it happened.

I took an interest in stockmarkets and enrolled on a course with the Reliance School of Investment in 1972. Much of what I learned has stayed with me and been proven over and over again. I would like to share some of those points with you as it may help you to come to terms with what is going on in world markets today.

It is important to understand that we have experienced what must be one of the longest rising markets in the last 100 years, with the result that double-digit profits with minimum perceived risk now appear to be the norm.

It is hardly unreasonable that, if the commentators believe that high profits and low risk can be expected from a constantly rising market, those who read and listen to the media expect the same.

Stockmarkets go through three phases in the rise to the top – fear, consolidation and madness. After the collapse of the previous bull market, the first phase is one of distrust and fear. Very few members of the investing public want to risk investing because every theory of global meltdown is being expounded.

In 1975, after war in the Middle East and the possibility of nuclear retaliation, the tripling of oil prices and worldwide recession – all of which happened in the space of 36 months – who would have guessed that markets would rise?

I wrote in a client newsletter that, as the market had fallen by 70 per cent, it was time to buy with both hands. But very few were brave enough, even though the FT30 was standing at around 150.

The second phase of market rises – consolidation – is the quiet time when value is reasonable, commentary is subdued and common sense pervades the market.

There are no gurus telling you how to make your fortune and no crazy stocks rising on the back of some absurd idea of being the next sure-fire money spinner. Such times occurred between January 1980 and January 1986 and again between September 1992 and September 1997.

Then we have the final phase – madness – when it seems as if markets are never going to come down and fortunes will be made by all who invest. In the early 1970s, just prior to the collapse of the markets, fortunes were made and lost out of Australian mining shares. Poseidon rose from five cents to over $100, dragging other mining stock with it in the hope of finding another Eldorado. All were eventually found to be worthless.

Prior to the collapse of markets in 1987, share clubs proliferated and there were even quiz games on TV with contestants buying and selling shares – it was so easy. No one needs to be reminded of the recent dotcom madness and money TV channels which were springing up everywhere just as this market was starting to fall.

Unfortunately, it is at the top of markets when investors feel the most confident. It is at the very bottom of the market when fear is greatest and everyone is saying sell.

The problem is that these events take many years to unfold and experience is not always a great teacher. With world stockmarkets falling, can we learn from the past and buy even though we are fearful? The best investors are those who ignore it all, invest the money and watch it accumulate over the years ahead.

In April, I wrote that the FTSE 100 would fall to 4,600. In January 1999, I suggested protecting Pep profits from a possible coming fall. Some clients followed the advice and took action.

Today, I am writing to say that now is the time to buy and accumulate. It might not happen overnight and you might suffer further losses but the markets will turn and profits will be made.

It is at the bottom of the markets when the most secure profits are made, not the top. However, it is at the bottom when the right decision is harder because it can get lonely when so many are telling you that you are doomed.


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