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Investment View

You have to hand it to those bears. When they have the inclination, they can really shift. The UK stockmarket officially went into bear territory pretty much the day my previous article appeared. A week may be a long time in politics but it can be a lifetime in the stockmarket.

Try as I might, I cannot find an excess of pessimism around. There are doom merchants who have described our market experiences of recent weeks as a “crash” or “the beginning of the end” but most investors appear to be fairly sanguine. I particularly liked the private investor, whose portfolio cannot have wandered far into five figures, who was interviewed for the Today programme and pronounced he was not concerned, was investing for the long term and considered he had a sufficiently wide diversity of investments to ensure he could weather any storm. The interviewer described him as pragmatic. Well, you have to be, don&#39t you?

And pragmatism was what I found at the IFA UK conference in Newport last week. It was hardly the best day to visit a championship golf course. The mist was lying heavy on the greens and enough of the audience knew of Anne Robinson to give anyone born the wrong of the River Severn a hard time. With representatives from Jupiter, Henderson Investors and the AITC (plus me), a packed audience had sufficient experts to direct their fears and concerns over the spectre of cascading share prices. “What do I say to clients who have lost so much in Japan?” asked one nervous IFA. I ventured “Sorry,” which secured enough of a laugh to make me realise their clients were not as concerned as all that. Day traders and short-term speculators may be having a tough time but the pragmatism of the private investor appeared evident in the faces of the IFAs present.

If recent events have proved anything, it is that confidence is a very fragile thing. The collapse in share values has hardly been of the scale experienced half a generation ago but it has been sufficiently swift – and sufficiently substantial in some sectors – to make me believe the recovery may be slow. In 1988 we were waiting for a recession that never came. The loosening of monetary policy, which coincided with a boom in house prices, driven by ill-considered Government policy, brought back inflation in spades. Not only did the cost of living rise by more than 10 per cent but we had to suffer double-digit interest rates as part of the medicine to cure the ailment.

It is hard to see anything similar happening this time around but that is not to say confidence will return quickly. I still believe, personally, we are in buying territory but it may take some time before this is translated into worthwhile profits for those brave enough to take the plunge. I remain convinced this bear market marks the end of a period of valuation expansion. We need to prepare ourselves for lower investment returns over a prolonged period.

With stakeholder peeping just over the horizon, it is worth reflecting on alternatives to stockmarket investment. Property offers good value but is difficult to access for all but the very wealthy. Government bonds provide poor yields and the ending of the minimum funding requirement could restore the balance between supply and demand. Cash will hardly deliver the compound growth that those putting money away for retirement many years hence will need. So equities still seem to be the best game in town. There will be bad years as well as good. 2000 was a bad year. It is rare for shares to finish the year with a negative return and even rarer for two years on the trot. Those forecasting a further collapse in share values should bear this in mind. The consequences do not bear thinking about – for investors, for governments, for companies, for everyone. Don&#39t just sit there. Put on your buying boots.

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