Here are some reasons why you should avoid the stock market for now.
I reckon this market is a buy. But not everybody agrees. Some say you shouldn't invest now because:
* High fuel prices will hurt the economy;
* A housing crash will hurt the economy;
* A weak US dollar will hurt the economy;
* Rising inflation will hurt the economy;
* Excessive government borrowing will hurt the economy;
* Crippling consumer debts will hurt the economy, and;
* A looming recession will hurt the economy;
But I'm not worried. You see:
* I can't predict the economy: And nor can you. And nor can superinvestors such as Warren Buffett, who describes economic forecasts as an "expensive distraction for many investors and businessmen". Among the hot economic topics of today, can you recall anybody who predicted oil at $80 when it was $16 in 2001? I can't. But I can highlight numerous property doomsters with egg on their faces from the past five years (I'm one). Economic forecasters get it wrong so often because there are so many variables at play. They may be able to get something right on occasion, but a 'surprise' elsewhere could easily overshadow their prescience in terms of what the stock market does.
* Bull markets climb a wall of worry: It's a corny adage. But it's true -- there is always something to worry about. If it's not oil shocks or housing gloom, it's about pension deficits or dodgy accounting. In fact, today's high-profile anxiety tells there are plenty of bears out there that must be converted before the current bull run comes to an end. When you recall the deep bear phases of the past were preceded by terms such as "new economic era" or "permanently high plateaus", I don't think we're in for another mega market setback just yet.
* It may all be priced in anyway: If it's in the headlines, it's in the price. So the aforementioned worries may already be accounted for by the market. As I have mentioned before, the FTSE 100 is currently trading at 12 times earnings -- the lowest P/E I think since 1990. Coincidentally, that was the last time Britain entered a recession. Sixteen years ago, base rates and gilt yields were about 10%. But with base rates and gilt yields now below 5%, I feel today's earnings yield (i.e. the inverse of the P/E) of 8.3% looks much more attractive. Though the FTSE 100 fell 12% in 1990, it actually increased 32% during the recessionary years of 1991 and 1992!
* The market pulls through anyway: Wars, recessions, crashes, turmoil -- you name it -- the stock market has seen it all before. Yet despite all the upsets, capitalism has survived, businesses have become stronger, new industries have emerged and the stock market has pulled through every time. Take a ten-year (or more) view of your investment and history suggests you'll almost certainly beat the savings account by a decent margin. So even if there is some economic trouble and shares fall, you'll be very unlucky to lose out over the longer term.
What now?
Here's what I still think you should do:
1) Buy the market: Visit the Fool's index tracker centre and learn about a cheap and easy way to back the FTSE. Monthly contributions can start from as little as £50 a month.
2) Buy cheap shares: Visit Champion Shares and discover which SIX shares I recommend you purchase in today's lacklustre market. This free 30-day trial of Champion Shares comes with no obligation and reveals all fifteen recommendations -- plus many other share ideas!
To read more about the market, click on:
"This Market Is A Buy" by Maynard Paton
"When Markets Climb A Wall Of Worry" by Maynard Paton
"This Is A Tracker's Market" by Maynard Paton
