Diary of a private investor: politicians have us in their grip
Once you become acclimatised to the market turbulence, the investment game is still worth playing.
2:00AM BST 01 Oct 2011
Stock market volatility has been going on so long that one is almost getting used to it. It is the peacetime equivalent of living through a war and getting accustomed to siren wails. A share of mine drops 4pc and the next day falls another 7pc. Nothing unusual about that. If I can't take it, I should go and get treated for shell shock.
Often people who write in newspapers adopt a persona and, in particular, a confidence that is not genuine, let alone justified. Actually, most of us do not know what is going to happen. And in our personal investments and other financial decisions, we make mistakes like everyone else. Investment is living with uncertainty – knowing you will get it wrong some of the time but reckoning the game is still worth playing.
There is certainly no need to think that everyone but you is doing fine in the current crisis. I got the following email from a former chief investment officer of a major fund manager who now looks after his own money: "I am doing badly. I sell the wrong stocks, hold onto the wrong stocks and bottom fish in the wrong stocks." I know how he feels.
A couple of months ago, when the current crisis of confidence began, I sold off some of my shares in Telecom Plus, a utility company. I reasoned that people had been pushing the price up because it was a relatively safe bet in uncertain times but really the shares were now somewhat overrated. I sold when the shares had fallen a little and they have since risen, even above the level in July – a magnificent outperformance. Thank goodness I sold only a minority of my holding.
Right now the outlook for the markets seems to depend more on politicians than I can ever remember it doing before. They are often referred to on radio and television as "leaders", which I am beginning to find slightly risible. It is apparent that this bunch of "leaders" firstly does not really know what to do and secondly, to the extent that they have got ideas of what to do, their ideas are all different. It has a bit of a feel of the doomed Weimar Republic.
Of course it is not surprising that nothing can easily be done when the euro is a single currency without a single country running it.
Nevertheless, at any moment an announcement could conceivably be made which will overcome the widespread fear and distrust. If that happens, the market could rise so fast that you would not be able to get any money into it. But if the "leaders" continue to dribble out half-hearted rescues that don't work, the market could fall further. It's up to those "leaders".
Despite all the uncertainty and volatility, I have been buying some shares in the past month, bringing my cash down from about 14pc of my portfolio to 10pc.
One notion of mine has been to secure some of the fabulous dividend yields that are currently available. I half-think "forget about the share prices, just focus on the whopping dividend income".
Apparently investors in the United States have had the same thought and have been buying into exchange-traded funds (ETFs).
ETFs are funds you can buy and sell like shares and give you exposure to a particular kind of investment – like gold, or a whole stock market, or whatever.
There is an equivalent one in Britain called iShares FTSE UK Dividend Plus, but it might be better to buy directly into big companies with handsome prospective yields, such as Vodafone (5.8pc with the price at 164p), Shell (5.2pc at £20.27) and British Land (5.5pc at 490p).
At least one piece of good news has turned up. It now looks likely that the Bank of England will finally put in place some quantitative easing either this month or next.
The minutes of the Monetary Policy Committee openly raised the possibility last month and one of the members has said he almost voted for it then.
Some people have objected in the past that there is a danger it could fuel inflation. But wage inflation is dormant and commodity prices have now fallen back.
I am particularly aware of this since I have shares in a zinc mine and the price of this estimable metal has slipped from $1.12 in July to 86 cents earlier this week. Ouch!
http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/8798796/Diary-of-a-private-investor-politicians-have-us-in-their-grip.html
http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/8798796/Diary-of-a-private-investor-politicians-have-us-in-their-grip.html