The greatest challenge for today’s nervous investors


It’s time once again to see a market fall as a buying opportunity.

Well, he did warn us.

Forget Greece, Worry About France Instead!” he began, then adding:

“…When one crisis is over, there’s usually another one just around the corner, and the next trigger could very well be the French presidential election on 22 April. That’s because the current favourite is proposing policies which, if implemented, are all but guaranteed to create a new eurozone financial crisis with France at its core.

So wrote Fool writer Tony Luckett at the start of this month.

Like you, perhaps, I’m wishing I paid more attention to Tony following the fall-out from the French elections and yesterday’s 100-point FTSE slump. So far during April, we’ve had three occasions when the index has registered a triple-digit plunge and I now regret being a bit too eager to buy earlier on in the year. FTSE 6,000 indeed!

Throw in the weekend’s collapse of the Dutch government and some forthcoming Greek elections as well, and it seems clear to me all those crazy euro-politicians now seem hell-bent on giving us yet another summer share slump.

And just so you know, St Leger Day this year is 15 September.

Joe, Jean, Jose and Giorgos

Still, I’d rather be Joe Punter here in Britain with a FTSE floundering once again at 5,700 than having to battle with shares in Europe.

While our blue chips have lost 5% or so since their March peak, poor old Jean Punteur in France has seen his valeurs de premier ordre thumped 14% during the same time. Meanwhile Jose Punteros has watched his Madrid-traded stocks collapse by 19%, almost putting his portfolio firmly into mercado bajista territory.

And if you think that’s bad, spare a thought for Giorgos Punteropoulos, who probably couldn’t care less how his shares have done this year — given the Greek market has been crushed 83% since the start of 2008.

News just in… there is hope

Yet despite what the euro-politicians have thrown at us, I see hope. Some points to think about:

  • Just yesterday we were told company dividends rallied 25% during the first quarter, and could rise by 8% for the year as a whole. That does not sound like the end of the world to me.
  • Many larger companies are still progressing well. Just this morning, I see ARM Holdings (LSE: ARM) has reported profits up 22% while Associated British Foods (LSE: ABF) has lifted earnings by 5%.
  • Many smaller companies are still progressing well. Just this morning, I see Smiths News (LSE: NWS) has raised earnings by 14%, while Carr’s Milling Industries (LSE: CRM) has lifted profits by 31%.
  • Major blue chips are showing confidence by splashing their cash. Today we seeRoyal Dutch Shell (LSE: RDSB) agreeing to buy Cove Energy (LSE: COV) for £1.1 billion, while yesterday we saw Vodafone (LSE: VOD) offering to buy Cable & Wireless Worldwide (LSE: CW) for £1 billion. And last week, we sawGlaxoSmithKline (LSE: GSK) rebuffed after offering £1.6 billion to buy Human Genome Sciences (NASDAQ: HGSI.US).
  • Anybody holding Cove, C&WW or Human Genome at the start of this year won’t be worrying too much about French politics today. They’re looking at year-to-date gains of 94%, 123% and 97% respectively.

A repeat of last year’s buying opportunity

We saw last year how quickly markets can turn. News goes from bad to worse and, before you know it, the market’s lost 10% in a week.

In a downturn, many investors will, of course, give up and sell out at any old price (once again), just to rid themselves of the ruthless psychological pain of an ever-dwindling portfolio. Indeed, a few more 100-point slumps like yesterday, and I’m sure we’ll start to see the towels starting being thrown.

But if we learnt anything from the panic days of last summer — or the really dark days of the banking crash — it’s that you need courage and bravery to be a successful stock-market investor. In fact, the masters have always told us to be greedy when everyone’s fearful, buy when there’s blood in the streets and buy at the point of maximum pessimism.

The guru told us to buy

True, we’re not exactly at the point of maximum pessimism just yet, but such ‘contrarian’ advice generally works in practice. Just recall the actions of City super-investor Neil Woodford, who in the midst of the Greek-debt crisis last year claimed there was a “once in a decade opportunity” to buy high-quality shares.

That courage to back top-notch companies at attractive prices — despite the wider sovereign-debt worries and all the market turbulence — generated Woodford healthy rewards. With dividends reinvested, Woodford’s funds gained 12% last year, versus a 3% index fall.

Now I don’t know about you, but I’d love to score such healthy share-price gains in a downturn.

Your challenge

All told, there are no easy answers in this market, in this economy and in this ongoing euro-debt mess. The future, as ever, remains uncertain.

But that shouldn’t stop you and I investing in the stock market. People easily forget that, even in the good times, the future is uncertain. Tony Luckett warned us about the French elections, but just exactly what long-term effect they’ll have on the wider eurozone — or our own market — remains to be seen.

All we can do, like Neil Woodford, is to find good-quality companies at cheap prices and hold for the long term. It’s certainly a challenge to find that type of investment, although it’s by no means impossible. Buying such investments when the market is falling is certainly another challenge, as the siren doom-mongers can be very persuasive.

However… buying quality companies — and then holding on in the face of subsequent market falls — can test even the most seasoned of stock-pickers. That perhaps is greatest challenge for today’s nervous investors as those euro-politicians stir the debt crisis further.

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Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

A version of this article, written by Maynard Payton, originally appeared on fool.co.uk

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