Fool's Eye View

[ April 5, 2000 ]

A Lot of Fuss About Nothing

By Stuart Watson (TMFTiger)

Great Titchfield Street, London -- I was going to write about the latest figures from Granada (LSE: GAA) today. But the temporary closure of the London stock market, or more precisely the chaos surrounding it, is much more interesting. On Monday the indices calculated by Reuters (LSE: RTR) were out of action for the morning. Today, in an unrelated problem, there were no prices on the London Stock Exchange for most of the day. Trading began at 3:45pm and the market's closing time has been extended to 6:30pm rather than the normal 4:30pm.

For a number of reasons today's interruption raised a few eyebrows. First of all, the US markets had a see-saw ride yesterday. The Nasdaq Composite index fell by nearly 14% at one point before doing an about turn and ending the day down just 2%. The other European markets seemed pretty spooked by this, with both France and Germany posting substantial losses today. Was the closure of the London market a defensive measure, muttered the conspiracy theorists?

It is also the last day of the tax year in the UK, so a high level of trading was expected by those doing Capital Gains Tax planning or applying for last-gasp ISAs. Some commentators even suggested that the Inland Revenue may extend the tax year as a result. That seems unlikely but then the Revenue does seem to like making up the rules as it goes along. If that was not enough the Financial Times also ran a story today that the London Stock Exchange was considering a merger with Frankfurt. Not a good time to be seen as the weaker partner.

All this fuss because you can't trade for one day. Casting my mind back I can't seem to remember too many similar instances. I still get the occasional power cut. TV shows sometimes go off the air. I think we can forgive the Stock Exchange one little slip-up. OK, so your cash is not at risk in these two examples. But nobody's perfect. Mistakes do happen.

There are around 250 trading days in a year. Would it really matter if we had one less? As TMFMayn pointed out earlier today in the office, you can't trade for two days every week on Saturday and Sunday anyway. To me the chaos and panic today just illustrates what is wrong with many people's approach to investment. It is all about the price, or to be more precise the short-term movements in price. Cut off the prices and they don't know what to do.

Perhaps, and it is a radical thought I'll admit, we should actually focus on the fundamentals of the companies we are investing in, rather than the prices. You know, all that boring stuff like sales growth, margins and cash flow. Warren Buffett has stated in the past that when you buy a share you should be happy to hold it for a long time. In fact he has even said you should approach each investment with the view that the market could be closed for the next 10 years, and you could not trade in the meantime.

On the whole there was little reaction to today's closure on our discussion boards. I find that very reassuring. As a group, retail investors are often given a hard time by the press and professional investors. After looking at the reaction to today's problems it is pretty clear to me who the real amateurs are.

Related Links

• Fool's Eye View discussion board
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