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Investment view

It was sobering to read last week that the three months to 30 September 2002 produced the worst quarterly performance for American indices since the final quarter of 1987. Then, we had a great stockmarket crash that saw markets lose a third of their value in just days. It was a mesmerising time. Even old hands like me did not know quite what to make of the speed at which prices imploded.

I have several abiding memories of Black Monday and the week that followed. A hurricane had swept through South-east England the previous week and the garden of my Suffolk home had been devastated, with trees littering drive and lawn. The market failed to open on Friday because traders were unable to reach their desks because of blocked roads and no trains.

Monday morning saw me at home, continuing the work of clearing the debris. When the office rang to report the extent of the market&#39s fall, I realised the financial damage being wrought outweighed my own modest problems. It was the next London train for me.

That week passed in a haze of disbelief as selling pressure intensified and share prices were slashed. It happened that a radio broadcast was due to take place from our trading floor that Friday. Arranged well before Black Monday, the producer and presenters could not believe their luck that they would be in the heart of the Square Mile during such a dramatic week. They were sadly disappointed. By Friday, volumes had evaporated and traders sat gazing at their screens with little to do. The broadcasting opportunity par excellence turned into one of the dullest radio broadcasts I have heard.

It is estimated that more than 50,000 City jobs were lost as a consequence of that short, sharp bear market. It seems likely that even more will go this time around. Things are different today, of course, but the fact remains that prolonged down periods in the market inhibits the flow of new business while lower valuations lead to lower fees for investment management houses.

However, the carnage will not be distributed evenly, as is becoming clear from evidence emerging. Some fund management groups are continuing to achieve a positive inflow of money. Others are suffering hugely. A bear market of this length can only accelerate a restructuring of this industry.

The private investor, meanwhile, appears to have remained remarkably sanguine, if my experience at various functions, as far apart as Exeter and Ipswich, is anything to go by.

In Duxford, near Cambridge, I was weaving in and out of military aircraft with a band of private investors anxious to quiz their investment managers as to when the market turn would come.

One seminar attendee kindly remarked that my own summary of events had been most honest. By that I assume he believed me when I said I had no idea when the bear market would end.

UK private investors may feel less assured once the valuation season starts in earnest. Many have their personal portfolio valuations carried out six-monthly, on April 5 and October 5, to coincide with the tax year.

This week sees the half-yearly valuations being prepared and over the course of the next few weeks they will be dropping on to the mats of many direct investors in the stockmarket. It was much the same this time last year but then we had the terrorist attacks to blame. Today is more difficult although the continuing uncertainty over Iraq is clearly a well-publicised factor.

But it was in Ipswich that I heard words of wisdom that were new to me but which undoubtedly will be absorbed into the Tora litany.Warren Buffet remains a source of great inspiration and has developed, over the years, a reputation for having an apposite comment or two up his sleeve.

It was he who wrote in early 2001 to Berkshire Hathaway shareholders that his decision to stay out of technology shares because valuation levels had reached ridiculous levels had proved correct. “Nothing sedates rationality like large doses of effortless money” was the way he put it.

He also said, according to the colleague who introduced me at an investment lunch: “When others are greedy, be fearful; and when others are fearful, be greedy.” Fear there is aplenty at present. Perhaps it is be time to be greedy too.

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