Pessimists never invest in the stock market. Don't fall for their doom mongering.
The stock market may be due a fall. I've been saying it for a while, based largely on the valuation of some shares, especially when compared to the economic outlook.
But although I'm investing cautiously, I'm not a stock market bear. Such people are usually permanently bearish (perma-bears), thinking the market is always headed for a fall.
There are always reasons to be pessimistic. Here are three reasons right off the top of my head…
- unemployment is high, and still rising;
- government debt is out of control; and
- interest rates can only go higher.
More Reasons To Be Pessimistic
There are many more reasons to be pessimistic. I'm not going to bore you with the details. All you need to know is that if you think hard enough, you can come up with some really compelling reasons as to why the world will end sometime between now and 2060.
Worrying about what might go wrong in the future is a futile pastime. For all the things that might go wrong, there are plenty that might go right.
Never underestimate the ingenuity of humans to solve problems. We are an intelligent, highly educated race. Collectively, we will find a way to exist in a world of less oil. We will find a way to live with climate change. Heck, England might even find a way to win the football World Cup.
That said, you do need to think ahead, and plan for the future. In terms of your personal finances, you need to act now in order to give yourself any reasonable chance of living a financially happy retirement.
Try Living On £95 A Week
I'm not talking having millions of pounds by the time you retire, but unless you want to try to live on the state pension of £95.25 per week, you do need to be able to generate a reasonable level of income in order to be that little bit more financially comfortable in your twilight years.
In terms of stock market investing, you also need to plan ahead. You need to have realistic expectations.
For example, after the market's rapid rise, you have to realise it could be in for a flat or down period. In the US, analysis by Deutsche Bank showed the only other 6-month period to match the current run-up came in 1933, and you don't need me to tell you what happened next back in the Depression years.
Wayne Rooney's Metatarsal
But you need to remain optimistic. Otherwise, why would you ever invest? There are always reasons not to buy shares. There are always potential problems in the future, in terms of the economy, debt levels, peak-oil and Wayne Rooney's dodgy metatarsal.
I'm not saying optimism should rule over everything else. Realistically optimistic is my mantra. Life is too short to worry about things all the time, especially things that haven't happened yet, and frankly, will probably never happen.
That's not to say you should dive into the stock market now and buy everything that's cheap -- just buying shares in a company because it is cheap is not going to cut the mustard. And just buying shares in a company because it has discovered a way to create electricity from raw sewage isn't going to work either.
You need to plan ahead, and plan ahead realistically optimistically (try saying those last 2 words ten times in a row!). Realistically, buying shares today in a company like Tesco (LSE: TSCO) or Vodafone (LSE: VOD) should deliver you a decent return over the next 5 or 10 years.
Great Companies… Great Returns
Optimistically, shares in a high quality company like Autonomy (LSE: AU) or Capita (LSE: CPI) might offer you the prospect of outsized returns over the next 5 or 10 years. As an aside both those companies feature either in mine or Champion Shares Analyst Maynard Paton's list of our three very best companies listed on the whole London stock exchange.
The perma bears will beg to differ. They'll be warning of a double-dip, the next credit-related crisis and even be happy to tell us the market will retest the March 2009 bottom.
Maybe they'll be right. But almost certainly, they'll never invest in the stock market, because no matter how bad things might be, they'll always think something even worse is just around the corner.
It rarely is.
More on the economy and the markets:
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article.
