Hello All, and Happy New Year.

This issue, I shall start with some questions: hands up, all those who have heard of bitcoins. Ok, keep those hands up, if you know what one is. Right, finally, hands still up, if you know how the bitcoin actually works. I thought as much, not many. It is what is described as a ‘crypto-currency’, a digital alternative to money, and the biggest booming investment in recent memory. The gyrations in bitcoin, and its imitators throughout December and into the New Year, show what can happen when greed turns to fear – almost overnight. In the last 12 months bitcoin value has risen from around $900 to nearly $20,000 and recently fallen to about $10,700. The worst falls resulted from fraudulent activities, leading to some bitcoin wallets being hacked, and trading was suspended on some exchanges. Those who bought the futures contracts when they launched, may be nursing significant losses, despite some upswings in value.

These fluctuations, however, should be a wake-up call for us all – to the extent that, when a market correction comes in equity markets (much more pertinent to most of us), as it inevitably will, it may well be sudden and savage, as real fear returns.  Any investor who is not prepared to remain invested for the longer term, and needs to ‘crystallise’ value within the next couple of years, should be very careful, and consider a staggered programme of disinvestment, rather than continuing to ride the bull market wave in the hope of achieving perfect timing for the withdrawal of funds.  It may well be the case that the longer the bull market runs, the more savage the shock will be, when it ends.

Most likely, a correction will be greeted with calls of it being a ‘buying opportunity’ and that may well be the case, and a short-term bounce could follow (which is what happened, in some instances of financial corrections in the past) and is a possibility in the next one. That said, markets will react to the circumstances at that time, and if the economic outlook of the day is not rosy, then the ‘Bears’ will prevail, and markets will continue to suffer, until such time as the underlying factors improve.

For now, though, the bull market continues, and economic conditions are considered by most commentators to be pretty rosy, but one should be prepared for this to end at some point. When that occurs, it will be vital for investors to consider their objectives and their time scales, and whether they really have the stomach to stay (reasonably) fully invested, or to sit on the side-lines for a while, ignoring the buying opportunities in case there are further falls. We should remember that when the ‘dot-com’ boom and its associated technology bubble ended so spectacularly, at the start of the new millennium, it took until 2003 before the stars lined up favourably enough for markets to take off on the next spell of reasonably consistent growth (to be ended in August 2007 by the credit crunch and subsequent banking melt-down). The old adage that ‘it is time in the market, not timing the market, that matters’ is still as valid as ever. By way of an example, the FTSE All-Share index was launched on 16 January 1962 at 100 and stands, as I write, at 4230, a tidy capital gain of 4130% or 6.91% per year compound, with an average income yield of about 3.6% per annum, on top. Not bad, eh?

On that happy note, I’m off. See you in the Spring.

David Foot