| Nobody in the
financial world who lived through the crash of
’87 will ever forget it – what I had
forgotten, though, was how utterly unnerving it
was. It really did seem that the world as we knew
it had come to an end, and the future was
completely uncharted territory. I would like to
say that my articles at the time were full of
stout-hearted recommendations to investors to get
into the market now while prices were at bargain
basement levels. But at best they could only
produce tentative suggestions that investors
should probably not sell their existing
portfolio, and should stick to using the
drip-feed, regular savings method for any new
investment in the future.
With hindsight – wonderful thing! –
I should, of course, have been telling people to
jump in and fill their boots: but while it seems
clear as day now, it wasn’t nearly so
obvious then.
If there is ever another big crash – and
what we’ve seen so far this year
doesn’t qualify for that – it will take
us by surprise because it will behave differently
from what we were expecting – almost by
definition.
|
So the ‘lessons
of history’ need to be approached with care
– they won’t guarantee we won’t be
caught out somewhere, sometime. But whatever the
circumstances, there are a couple of rules which
should practically guarantee that while it might
be an uncomfortable experience for investors, it
needn’t be a lasting setback: * Don’t
buy at the top and
* Don’t sell at the bottom
Easier said than done, you say? Not at all:
for the first, spread your investment out over a
year or more in regular savings and that in
itself will ensure you’re not putting all
your money in at the top. And as for the second,
at least we can recognise when the market has
fallen.
The best rule, of course, is to buy after a
market crash. This time round, in the mini-crash
of 1997, plenty of investors have shown
themselves capable of doing just that. The test
will come if the market continues falling for a
while. But if you’re buying regularly on the
way down, you should have no need to worry.
|
