Finding your Way

I have had the good fortune, in the last month or so, to meet with a couple of Fund Managers from ‘boutique’ investment houses. They each spoke eloquently and robustly for the best part of an hour, one on ‘multi-asset’ investing, whilst the other concentrated on Japan. There was a phrase that was used, which was particularly relevant – not just to one country – but to many. The phrase was “the Stock Market is not the Economy”.

This however, is specially pertinent in the current post-earthquake Japan. Clearly, the after-effects of this, and the ensuing tsunami, will affect the domestic economy for some while, as the repairs are made to homes and commercial property, and life slowly regains some sense of normality. More importantly, for the longer-term, the unstable Government, the creaky health service, and pensions system, are troubles that make the outlook pretty bleak. Some commentators even described Japan as a “basket case”. Be that as it may, for some of the companies listed on the Tokyo stock market, the future is bright. Many of those are famous names, market leaders, multinational companies whose earnings are derived from all over the globe. The Japanese equity market has many such good, growth companies that are undervalued. Their revenues are often steady and immune from the kind of local issues, that can depress share values, when isolated from the outside world. There are always contradictions in the investment world. Even when global economics are looking reasonably positive, local issues can mean that shares look somewhat battle-worn and weary.

Turning to the wider investment world, there are many examples of the lack of correlation between the economies of countries, and their stock markets; this is to some degree, due to the forward-thinking nature of both investors and market makers. Another common reason is uncertainty. There is little that professional investors like less than uncertainty, particularly in inflation, interest rates and politics. There is a situation somewhat like this in the UK at present, which may well be why share prices are currently rather volatile. This, added to uncertainty about commodity prices, instability in the Middle East and North Africa, and recent events in Pakistan, makes a perfect recipe for such volatility.

This year, there may be some veracity in the old stockbrokers’ saying “sell in May, and go away – come back on St Ledger’s Day” but I tend to think that, if you are in the market, and there is no pressing need for funds in the near future, stay put, and if you have any spare funds, buy when the market looks cheaper. A well-known luminary in the investment world, has recently stated that he is seeing “once in a lifetime” bargains, amongst some stocks. Remember, everything is cyclical, and the good times will surely follow the bad. When the papers are all full of adverts, showing how fantastically investment funds have done, then is maybe the time to start moving into something a little safer. Until then, for longer-term savings, you are probably better in the market than out of it. In a perfect investment world, timing is everything; but if you are unsure, then why not ‘drip-feed’ money on a monthly basis? But if you are going to lie awake at night, worrying about your investments, then stocks and shares are probably not for you! There are protected, and guaranteed products available, that should ensure you don’t lose any sleep, but get independent advice before you commit yourself, it can be a bit of a jungle out there!

David Foot

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