| Since March our market has risen by 24%, posing a | | | | utterly unpredictable. |
| dilemma for people looking to buy. Should they buy | | | | But after such a strong spike in the market, it would |
| now in the hope that the rally will continue, or are | | | | seem prudent to take a cautious tack. The golden |
| they better to wait, on the basis that the market | | | | rule that is better to buy when markets are low than |
| has run too hard and a pull back in prices is inevitable? | | | | when they are high, still applies. |
| Since 2004 our market has given investors a | | | | I see a number of experienced investors at present, |
| rollercoaster ride. From 2004 to 2007 it rose 50% on | | | | that are wary of the risk of a decline in price, but |
| the back of the global economic boom. Then, from | | | | also recognise that the market could continue |
| October 2007 to March 2009, as the recession and | | | | northwards, who are approaching the market by |
| global financial crisis started to bite, it fell by an | | | | investing in installments. |
| unnerving 40%. But it has staged a remarkable 24% | | | | I believe this is a very wise approach. It takes timing |
| recovery since March. | | | | right out of the equation. These people are splitting |
| Before we get too excited, we should acknowledge | | | | their investment capital into smaller chunks and then |
| that even though it has bounced beautifully over | | | | drip feeding this into the market. They are also |
| recent months, the market is still 27% below its 2007 | | | | choosing to buy the companies on their buy list that |
| peak. It needs to gain a further 38% to regain this | | | | look the cheapest. |
| 2007 high point. | | | | This is a very sensible way of mitigating the risk of |
| Therein lies a very important lesson for investors of | | | | buying just before a fall, while also gradually allocating |
| shares. Notice that the 40% decline requires a | | | | capital to the market in case it continues to rise. |
| recovery of over 60% to get the market back to | | | | It is also important to take a long-term view on |
| square. Such is the brutality of maths - losses require | | | | investing. People who are buying shares with a five |
| gains of a much higher magnitude to get back to the | | | | or ten-year view can accumulate in relative |
| starting line. | | | | confidence that prices should, over this time frame, |
| It is worth bearing this mathematical reality in mind as | | | | appreciate. |
| we ponder whether to buy now or not. Many people | | | | Even better, investors who are buying shares in |
| are regretting missing out on this latest rally. But the | | | | companies that provide solid dividends can invest with |
| truth is that today, even after a 24% rally, people | | | | even more confidence. As long as the companies |
| who reduced their share exposures in 2007 but also | | | | they buy can maintain or grow their dividends, |
| missed buying in March, are still well ahead of those | | | | receiving a regular income stream from your shares |
| who suffered the 2008 losses but stayed in the | | | | makes the ups and downs of share prices more |
| market and benefited from the recent bounce. | | | | tolerable. |
| A conservative approach, it would seem, is still the | | | | Rather than spending too much time in trying to |
| best way to approach the market. It is far more | | | | guess whether the market is going up or down, it is |
| important to be right about avoiding losses than it is | | | | perhaps better to identify a range of high quality |
| to be right about picking rallies. | | | | companies that pay solid dividends and then apply a |
| Frankly, I do not nor, I would humbly suggest, does | | | | measured approach to your investing. Gradually |
| any other human being, have any idea whether it will | | | | accumulate shares in those companies over time. |
| continue upwards or not from here. Markets are | | | | |