Is it finally Time to Invest?

The wild swings in share markets over the past month have not been conducive to sensible decision taking. It is all very well for the Sage of Omaha to be entering the market but not many people can afford his time scale. Nearly all hedge funds get measured month by month and year on year. Warren Buffet can easily ride out another 5-10% fallout given his fifteen year time scale. Most of his contemporaries are not in such a favourable position. Neither is the small investor.

The buying of bank stock is partly understandable as many financials seem to be writing in worst case scenarios as though they have actually happened. Yes, revenues are not likely to be as good as recent years but yields on many stocks are now so generous that even a halving of dividends would still leave a reasonable return. Of course, the key question remains over whether Governments will support troubled banks.

Having said that, even prior to the Lehman’s fallout the markets were very difficult to judge. One of the companies that had been doing very well out of the market volatility was IG Index. Earlier in the year the spread betting company reported a profit surge of 41% and the stock still fell 12%. All the markets could concentrate on was an up-tick in IG’s bad debt which increased to the heady heights of 2.2% of revenue. A slight increase in bad debt is hardly surprising in the current environment. One wonders what would have happened if they had reported lower than forecast earnings. On this basis the crop of stocks reporting over the next few weeks could be in for a torrid time.

As Simon Denham of rival spread betting firm, Financial Spreads, recently said “my advice continues to be sit on your hands and do nothing”.

Falls in equity prices tend to take a hefty period of time to reverse. Whilst in the long run solid companies do give a good return on funds, the average investor has to pick a limited portfolio. In the current environment that portfolio might very well include stock that looks good but is holed below the water line. We think things are tough now but I really do wonder at the short memories of economists. I can remember all too well the dire state of affairs in the early eighties and nineties with millions out of work and huge employers laying off entire workforces almost on a weekly basis. Times might be tough on the high street but I assure you that you ain’t seen nothing yet. Even housing has managed to plummet 12% without any real evidence of forced selling. Once companies start to trim the fat off employee numbers, weaker units start to go under. This years University and School Leavers will find the dreaded ‘No Vacancies’ sign on the front door of more and more businesses and the impact on retail sales and on repossessions will start to really show up.

If you are trading the markets note that spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.

Article Source: http://www.articleszoom.com

About the Author :
A leading financial author based in the heart of the City. Peter Jones is a seasoned commentator on the financial markets including the spread betting and share trading markets.

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