I'm Not Selling

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By

Harvey Jones

Published in Investing Strategy on 29 September 2009

So what if markets are about to crash, I'm not selling.

Maybe I read too many newspapers, but I seem to have imbibed a lot of bad news with the business pages this weekend.

The only prediction that I didn't see is "The end of the world is nigh!", but apart from that, everything else is up for grabs.

Just take a look at some of the dirty data I have been exposed to during otherwise pleasant Saturday and Sunday morning breakfasts.

Those of a nervous disposition should look away now…

The world is set to enter a deflationary spiral next year, apparently. Either that, or an inflationary spiral. Take your pick. Global car sales will collapse, as cash-for-clunkers schemes are scrapped. Germany faces a second banking crisis. Spain and Italy are on the brink of depression. China's exports are crumbling (it's even worse in Japan). M3 money is contracting. The dollar and pound are in freefall. And don't even talk about the Baltic states.

And all over the world, stimulus packages are coming to an end, state spending is being slashed, job losses are mounting, unemployment benefits are shrinking, and, and, and… need I go on?

We're all going to die! Maybe

Okay, I did read one commentator who blithely claimed this is the great depression that never was and we are headed for a V-shaped recovery, but he was drowned out by the massed ranks of credit crunch Cassandras.

Of course the only rational response to such a fearsome scenario is to translate your entire portfolio into gold or cash (but heaven forbid, not sterling), stock up on tinned food and leap into the bunker you dug in your backyard when the first queues formed outside Northern Rock branches.

Isn't it?

Timing isn't on your side

Long-time Fools regularly state that you can't time the markets, or correctly predict macroeconomic swings of fortune, and of course I concur. But I am also a self-confessed wobbler, and sometimes give into temptation (usually with disastrous results).

So I have been giving serious thought to which shares of funds I should sell, and where I should park my profits. Yet strangely enough, I haven't done anything. So what is stopping me?

  • I've wobbled before! At the start of September, I sensed a reversal in the air, and busily set about protecting my portfolio with a defensive battery of stop-losses. And now I wish I hadn't. A slight dip triggered my traps and springs, and I ended selling up several top-quality stocks, which immediately rebounded. That's the grim Reality of Stop-Losses. Timing the market isn't for Fools.

  • It's expensive! Execution-only share trading sites are quick and easy to operate, and cheap to boot. Motley Fool, to pick a totally random example, charges just £10 per trade. But selling your entire portfolio with the intention of buying it back in the near future has its costs, which include stamp duty. Especially for those, like me, who have smeared relatively small sums over a broad range of stocks and funds.

  • What would I do with all the cash? I'm not spending it (it's my retirement fund), nor do I want to stick it into a dreary fixed-rate bond, and the returns on instant access are still pants. It would certainly be daft to sell my reliable dividend payers such as BP (LSE:BP), GlaxoSmithKline (LSE: GSK), Royal Dutch Shell (LSE: RDSB), Tesco (LSE: TSCO) and Vodafone (LSE: VOD). They are still trouncing cash, whatever happens to their share prices in the short term.

  • And what if the doomsayers are wrong? You all know the old phrase that stock markets climb a wall of worry. Well this year they have climbed a mountain of misfortune, a rockface of ruin, a hillside of hopelessness, and at a dizzying clip. Few people predicted that. The people who are crying havoc today were also crying havoc back in March, and were pathetically wrong. I don't want to chuck my portfolio over the side, only to see markets steam out of sight.

  • I think I've built a pretty decent portfolio of nicely-valued stocks, balanced by between big divi blue-chips and cash-rich little goers as featured in Maynard Paton's Champion Shares. And I'm hanging onto nearly all of them, because most are strong enough to survive any coming turbulence.

Hang on in there, baby

So there are five good reasons to defy the worriers and stay invested in the stock market, but I am not ignoring them altogether.

I am thinking twice about putting more money in the market right now, because I'll admit the worriers and wobblers have got to me, and I want to see how the next few months pan out before I commit myself further.

More from Harvey Jones:

Harvey owns shares in BP, GlaxoSmithKline, Royal Dutch Shell, Tesco and Vodafone.

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Comments

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LetsGoa 29 Sep 2009 , 11:32am

A great tide of World government money 20 trillion$ last count.

And Investors think that this is a durable recovery!?

This was a depression, now our leaders have made it worse.
The higher the market goes the worst the resulting crash will be.

Do you honestly think the problems of our economy can be fixed by going more into debt?

54Nick 29 Sep 2009 , 2:41pm

I am is still convinced that whatever political party in the UK is elected, they have no choice but to raise interest rates in the next couple of years to help recoupe their bale-out money to the banks.
This in turn will add brakes to the general market as intitutions swing their funds in that direction.
Even in that scenario there will always be the opportunities of making money from stocks. Once interest rates rise , the banks then will be well worthwhile watching.! Viva the stock market.

crudcutter 30 Sep 2009 , 2:39pm

54Nick,
Why on earth would the government RAISE interest rates - if they do then they pay more interest on all the debt (gilts) they issue. The same applies to the US government and many/most others.

No they will keep them low for too long and inflate their way out of trouble as always.

The banks (those that are solvent) are currently making huge profits out of the low interest rates. They borrow cheaply, then either speculate or lend to only the safest companies at incredably high rates.

I am surprised that in todays world there are still people so uneducated as to think that banks make more money when interest rates are high.


Ian

rlx 30 Sep 2009 , 2:48pm

Absolutely! Do NOT sell now!
Current dividend payments are generally much better than what you will get from the banks, AND, any double dip will have rectified itself in a few months anyway so you will be back where you started. I am going to hang on to my shares, collect the divis, and not lie awake at night wondering if a skyrocketing stock market will leave me unable to buy back in at a sensible price.

theoldone1 30 Sep 2009 , 10:37pm

Hi,

I'm absolutely convinced that the markets are going to go up, downwards or sideways-can I please have a huge salary and bonus please because I know exactly the same as all the highly paid pundits knew before the crash i.e. zilch-the only difference is by not knowing, at least I know I don't know (I think thats zen?).

However I do know that well run businesses will always continue to be a good investment and unlike gold, pays didvdends which I can spend. So far my bank shares have crashed and my tobaco shares have soared and my only reaction to prices crashing is that I can buy more shares of good businesses for less money; the underlying business hasn't changed one iota, despite all the prognostications of doom.

I think most crashes are indirectly caused by newspapers desperate to find a story, any story, to sell more papers and stockbrokers who can then buy and sell shares to jo public while raking of a nice profit. Another nice cosey cartel mutally backscratching whilst shafting the hardworking and productive and making themselves a nice living in the meantime.

The real capital of the country is not the paper money printed by governments, its people working and creating goods and services for other people and which can be exported to buy the basic necessities we need to import as a country.

I'm old enough to remember the days of (in)action when we thought the country would be ruined, the time when we thought petrol rationing would happen. I've suffered from incompetent/greedy IFA's who have variously sold me endowment policies and who've run of with my first year of subscritions as bonus, pensions misselling, precipice bonds, safe zero's etc etc and now I'm getting revenge in the best way possible by getting richer by myself i.e. using as few professional salespeople-whoops I meant IFA's as possible.

I guess there will come a time when its the end of the world, but if that happens there won't be any thing left to worry about anyway, certainly not council tax and all the other joys of modern living and I'll be growing vegetables rather than a lawn.

In the meantime I'll be buying a selection of well run companies which hopefully will continue to pay me the 6% + dividends, I'm looking at buying some small amounts of gold against the risk that Gordon will continue to print money (or quantitive easing as its laughingly called-did I remember some words about prudence) and avoid debts and keep some cash in case we get deflation.

In other words I'll change nothing, and I'd advise you to do the same.

The old one 1

RobinnBanks 03 Oct 2009 , 12:27am

Yes, keep your quality shares Harvey, and harvest their dividends. Now is NOT the time to sell, but rather to buy on the dips, no matter how low: the market will go up again eventually.

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