Two bubbles, two crashes, and still we come back for more.
If anything was going to demolish our faith in stocks and shares, the last decade would have done it. Two bubbles and two crashes have left markets more than one-third down on the end of the millennium. That's nearly a decade ago.
Equities are supposed to outperform cash over the longer term, but over the last decade they have failed badly. Yet we still believe. One in three people would like to keep their pension invested in the stock market, according to new research from Prudential.
Experienced investors are even more faithful. Otherwise I wouldn't be writing this, and you wouldn't be reading it. But is this blind faith? Are we deluded? Or are we right to hold fast in our belief that equities will come good in the longer run?
Faith no more
The last decade has torpedoed one of the key arguments in favour of long-term equity investing.
Before the crunch, I lost count of the number of brokers and advisers who told me that over a five-year period, stock markets have always made money. Now markets are down over 10 years, and it could easily be 15 years before they return to 1999 levels.
Yet still we believe. It's incredible, when you think about it. What else would you continue to buy despite the fact that it blew up in your face regularly?
At least property keeps you warm and dry at night. Share certificates don't. So why do we keep doing it?
When you look at the competition…
One reason is that most of us view stock markets as a victim of the credit crunch, rather than the cause of it. Equities weren't ludicrously overvalued, as they were at the peak of the technology boom.
Another reason, if a negative one, is that so many rival investments look even less attractive right now.
After the dot.com crash, investors soon found comfort in property, but there is no ready-made alternative right now. House prices could fall further. Bonds have been poor for years. And don't even mention cash.
This isn't exactly a vote of confidence in equities, but confidence is in short supply everywhere at the moment.
First out of the blocks
Another factor is that we can see that shares have taken a bigger battering than, say, property. The benchmark FTSE 100 fell nearly 50% from peak to trough. UK house prices, by comparison, are down just 15%, according to Halifax.
So there is good reason for investors to think they are getting a better bargain on shares than on property. Especially since share prices tend to advance first in a recovery, with property bringing up the rear.
The anticipated rise in unemployment is also likely to weigh heavily on house prices, as is the continuing reluctance of bankers to grant mortgages to buyers. You don't need to beg your bank for a mortgage to buy stocks and shares.
Hope springs eternal
Yet I'm still impressed that investors believe. What else could be driving them? Fear? Hardly. Greed? Maybe.
Many of us only rediscovered our enthusiasm for equities during the "dash for trash" in March, April and May, when we could bag quick profits from banks and bombed-out stocks.
A bit of short-term profit-making always helps lift the spirits in dark times. Now the chance of a quick buck has gone, some will have cooled off a little. But most of us are still trading.
In for the long haul
Perhaps we are addicts? Throwing good money after bad, convinced that our luck is about to turn. If you are showing signs of addiction, losing money on one "can't fail" share tip after another, get out now. You're hooked, it's not healthy, and that's no way to build a decent portfolio.
But most of us know the key to investment success is finding good companies at attractive valuations, and hanging onto them until they prove us right. A nice dividend also helps.
And that largely explains why so many of us have kept the faith. Because we know this is a long game. It demands patience. We expect false trails and ugly downturns. We know we will lose money at times, sometimes lots of it. So we dig ourselves in, fortify our positions, and prepare for a long -- but ultimately successful -- campaign.
We're not ready to surrender yet.
You gotta have faith
In any case, no rational investor would quit with the market at its bottom, because that is the one surefire way of becoming a loser in the long term. We have to keep believing, because once we lose faith, we have lost everything. And anyway, what else would you do with your time?
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