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MARKET COMMENT
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If you buy any newspapers this weekend and flick through the finance pages no doubt you'll see lots of New Year Tips. Our tip is to ignore them completely. Better yet, screw up the paper and send it sailing through the air into the nearest waste paper bin to improve your hand/eye co-ordination at the same time. For starters the price of these shares will be inflated by market makers when trading begins next Tuesday. Not only that, most papers ask their writers to come up with just one pick designed to do well over the next twelve months. Each writer is in competition with every other writer on the paper, and each paper is in competition with every other paper. The end result is a collection of flighty shares that may do very well if the wind just happens to blowing in the right direction but are much more likely to disappoint. And if they do the tipster won't be around to point this out or say sorry either. Is it more likely that the New Year is a good time to buy shares or that these tips are useful column-padding for when corporate news is rather light? This recent Fool's Eye View by TMFPyad sums up this scenario very well. These share picks have the potential of doing better than average but this is more than offset by the fact that they could make heavy losses. Is it really worth trying to squeeze out a higher potential gain when your average expected gain is actually much lower? In fact this is very same reason we suggest that most people are better off with the percentage play of an index tracker rather than a managed fund. Whilst we are on the subject of tip-bashing let's not forget those year-end "target levels" for the FTSE 100 which are published by the various research analysts across the City. These are as much use to the long-term investor as the proverbial chocolate teapot. The typical method used is the current level plus 10%, tweaked a little so that it doesn't look so obvious and not forgetting to add a decimal point to look scientific. It doesn't matter where the FTSE is in twelve months' time, it's the continuation of that long-term growth trend that is important. Despite the recent falls in the market that record is still very much intact. Where Next?
TMFPyad on why many investors lose money
