FOOL'S EYE VIEW
Market? What Market?

By Stephen Bland (TMFPyad)
April 9, 2001

There must have been an incredible amount of stuff written and talked about the fall in the market over the last few weeks. Apart from the print media, we have websites like us and others where the state of the market must have taken up a fair amount of computer memory in discussion on the boards and articles compared with other chat. Then you have all the punditry on various radio and TV shows and so on.

Looking at Saturday's FT, I find that since the beginning of the year the FTSE 100 index has fallen 10%. It had also fallen over the year of 2000, so tracker fund investors over the last two or three years are losing money right now. So clearly the market has a direct relationship with the value of a tracker fund invested in it.

However, the amount of talk generated by the fall far exceeds that arising from the impact on tracker fund investors. What I find interesting is that a lot of other investors worry about it as well. Now if you hold a broad spread of blue chips then you probably have a quasi-tracker anyway. But if your portfolio is very sector-skewed, or there are only very few shares in it, then your personal performance is likely to be quite different.

Back to Saturday's FT again. It shows the best and worst performing shares over the last week and the moves in the same shares since the beginning of the year. Look at the range for the year to date movements and compare them with the 100 index fall of 10%. Autonomy (LSE: AU.), a former 100 index member, has fallen 83%; International Power (LSE: IPR) has risen 12% to give two examples of serious moves entirely different to the index..

My point is: why would anyone holding these shares or any particular shares, be interested in the general market movement? Their only concern should be their personal holdings. If Autonomy then it is jumping out of the window time, ensuring first of course that you are several storeys above ground. If International Power then you may be forgiven for having a smug feeling of superiority.

I fail to understand the incredible amount of hot air and paper spent on discussing the direction of the market, except for those upon whom it impinges directly such as tracker or broad portfolio investors. Okay, as that phone ad said, it is good to talk, but that is all it is. Pointless chatter. All the rest of it, like trying to predict the future direction, the curious round numberism that infects so many people (stuff like "support" at 5800 blah blah, why is it never 5678?), serves little useful purpose in my view. Worse than that, for beginners -- among whom are a large number of Motley Fool readers -- it is counterproductive.

The statistics on mug punters are well known. They go in at the wrong time. ISA sales were way down at the end of the tax year just finished on 5 April because of the falling market. Anyone with half a brain realises that they should have risen strongly, but it never works like that. Never has; this phenomenon is nothing new, 'twas always so and probably always will be. A strong buy signal, some might think.

Why would anyone contemplating buying a specific share consider the general market? It makes no sense to me, but this is not just an opinion. The simple examples above show how the individual performance of a share can vary enormously from the market index. It is always like this. So why discuss the market if you are in the market for specific shares? The share either makes sense or it doesn't, whatever strategy is employed, whether you use TA, FA, astrology or all three in combination. Whatever rings your bell, as measured by the ability to score repeated success for you.

Yet novice investors are clearly influenced in entirely the wrong way by all the hype about markets. That is why ISA sales have fallen so dramatically instead of rising dramatically.

But then I guess if investors were entirely rational then the sort of opportunities I seek might not exist. Even so, I would like it if novice Fools got the message. That would still leave legions of mug punters out there to satisfy the need for irrationality.