Many investors in shares are wondering how they should respond to the current volatility in most Stock Markets and the fear that 2008 will be as troublesome as last year, if not more so. The answer to this really depends on why you are investing and for how long. Many cash rich emerging nations, such as Kuwait, China and Singapore, and other wealthy investors are greedily gobbling up almost anything we are selling at a knockdown price. They have very long time horizons and very deep pockets. For them, the prospect of picking up stakes in some of the developed world’s finest financial institutions at five year lows is too good to miss.
I strongly suspect that many guardians of public wealth in the UK, for example, company pension funds, are eager sellers and may well have proved once again to have sold at exactly the wrong time whilst buying into, probably, bonds at the wrong time as well. Like second rate defenders in football, they seem destined to rush time after time towards the player with the ball only to see it deftly passed to another who has space and time. Oh, the humiliation of it all. Meanwhile, much as the England Football team are often found to wanting custodians of the hopes of a nation, the trustees responsible for around £1 Trillion of the public’s money are wrong footed by foreign operators to whom they gave the game in the first place.
Where does this leave the rest of us? Well, if you are investing in shares you really ought to know that they will not deliver stellar returns year after year and sometimes suffer losses from which they can take quite a while to recover. It makes sense to diversify your investments away from shares alone, this is generally held to be a sensible strategy but you should ask yourself about how long you intend to be invested. If, like Kuwait, you expect to be an investor indefinitely, then, perhaps, you should not worry about how poorly things are going now but wonder whether you are in a position to buy something on the cheap. It is odd how discounts in shops turn us into buyers and discounts in stock markets turns us into sellers.
Now may be a good time to reflect on whether you have the stomach for stocks at all, there is no shame in admitting that they hold too much fear. Fear and greed need to be kept in balance and shares can be more scary than, for example, fixed interest investments. What is wrong with holding index linked bonds? They may not offer the prospect of much real growth but you may be able to sleep at night.
