Evening Fool

Thursday, 27 August 1998

Market Close
FTSE 100  5368.50  -176.90 (-3.30%)
FTSE AS   2497.31   -78.71 (-3.15%)

The Market Crash Survival Guide

Not that this is one, of course

OK, OK, so Russia's crumbling, Boris Yeltsin is possibly resigning, the ruble is collapsing, the government may have fiddled the NHS waiting lists to show they're actually going down (yeah, right) and the markets of the world are plummeting. So what? So the sun here in Devon is shining, and at last, at last it feels a little like summer.

What care we that the FTSE 100 closed down 177 today at 5,368.5? What care we that dealers' screens were "a sea of red?" What care we that "more than £30 billion was wiped off the value of shares today?" We care, Fools, not one whit. Once more, the market does what the market does. As they say in Torremelinos (after six pints of Sangria): Que sera, sera!

Long-term, of course, we all know that the market outperforms all other investment vehicles (see Step Five of the Ten Steps). Even then, though, it seems unlikely that it will ever consistently return much more than 14% per year -- and that's probably an estimate on the high side. These last several years of mega-returns have fuelled what are unrealistic expectations of growth. Consider: TMF Coffee's favourite investor (yes, Warren Buffett -- got it in one!) has returned "only" 24% per annum for the last 30-odd years. This has been sufficient to earn him a personal fortune in the tens of billions of dollars. For all of us to expect returns like this -- returns many have indeed achieved in the past few years -- is insane. It won't happen over the long-term, and the long-term, as we know, is what builds capital (see Step Two). Hugely.

So what are the keys to surviving market downturns? Here, composed on the hoof, are my suggestions:

1. When the market is going well and your investments are going well, don't get greedy! Don't keep sitting there at your Excel spreadsheet or your copy of Quicken totting up how much lolly you've made today, or this afternoon, or in the last half an hour. It's just not healthy.

2. Say to yourself instead: "Now things are going well, which is marvellous. However, in the future things will undoubtedly not go so well. If I get too absorbed in elation now, then when things do eventually go badly -- as they will -- I will get just as absorbed in despair and panic. I can do without these violent emotional swings, and instead I will simply maintain a degree of detachment with regard to the whole business." Go on -- try saying this. It is very helpful. Only thing is, it only works if you start saying it to yourself when things are going well.

3. Be a regular saver and investor. That way, a market downturn becomes nothing more than a buying opportunity.

4. Reflect that Anne Scheiber, the US lawyer who invested $5,000 in 1944 and died in the mid-1990s worth over $20 million, never sold a share and invested only in common, easily understandable companies. To her, we must presume, market fluctuations were an irrelevancy.

5. Finally, stop buying the newspapers, don't watch the telly (except the Friday night repeats of Fawlty Towers at 8pm on BBC1 -- wonderful!) and go away on holiday. In short, switch off the market. Life's too short for all that hullabaloo.

Anyway, so exactly who did win and who lost in the markets today? Read on for a potted history....

Conquerors

Major conqueror today was Yorkshire-based small cap engineering company, David Brown, which announced that it had received an approach that may lead to an offer for the whole company. It closed up 57.5p at 216.5p as a result.

Elsewhere, there weren't many conquerors. Zeneca put on a meagre 14p to 2380p, presumably on the back of the positive news earlier in the week concerning its breast cancer drug, Nolvadex (tamoxifen), and the fact that it is likely to be cleared in early September by the US FDA for prevention of breast cancer in at risk women. This sweet pill is made a little sour by the fact that its patent has already run out in Europe and only has three years to go in the USA.

British Biotechnology was also a winner (so all things are relative, no?) today and put on 3.75p to 37.5p following the recent announcement of its hiring of a new Chief Executive, an expert in clinical trials, pinched from SmithKline Beecham. We have to presume he truly believes in Marimastat, their anti-cancer drug. Preliminary trial results will be available soon.

Newcastle United was also up (6p to 63p) after announcing that Kenny Dalglish had been sacked and replaced with Rude Gullet, the former Chelsea manager, as boss. (Sorry, "Ruud Gullit.") Still, they deserve a bit of a boost after the favour their Chairman, Mr. Hall, did for them with his remarks about the gentle womenfolk of Teesside while in a "club" in Spain.

Vanquished

Right, there were a lot of these today. Really a lot. Beating the Footsie share Blue Circle Industries was down 53p at 261p. These are clearly not good times for companies with exposure to developing markets, and Blue Circle Industries cannot have been helped by Prime Minister Mahathir of Malaysia's statement that Malaysia is now officially in a recession. Another company with developing markets exposure is Standard Chartered bank, down 80p at 507p.

Rolls-Royce fell 18p to 203p after interim results fell at the lower end of expectations.

Look, basically, if you think of a company and look up its price today, it almost certainly went down. Post your ideas, therefore, of potential buying opportunities to the message boards.

And Finally...

The Bank Holiday weekend is coming up, and it looks like it might be sunny. Only one more day at the office and then let the children's backseat, traffic jam wars begin.

Stay Foolish, everyone!

David Berger (TMF FoolUK)

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