The FTSE hits an 18-month high, but these 3 classic tips still apply.
Tomorrow marks the 12 month anniversary of the intra-day low point of the Great Bear Market of 2008-9. The FTSE 100 hit 3,460.7 on 9 March 2009.
There was nothing unusual about the market hitting lows back in those days, and at the time, 3,460.7 was seemingly just another low point on our inexorable journey to stock market Armageddon.
Great Timing?
Without wishing to pat ourselves on the back too hard, here at The Motley Fool, on that precise day in 2009, we published an article titled Is This the Market Bottom?
We're not gloating here, because we merely posed the question, rather than making a definitive call. Also, we'd been thinking the market had bottomed well before then, like at the end of January 2009 when I said Maybe It Is Time To Buy.
From then, the market proceeded to drop another 18% before hitting the bottom. Great timing, hey? We got a little closer to the bottom on 5 March 2009 in Four Signs Of A Market Bottom, but didn't quite take home the biscuits.
Still, we like to think our message around those stressful times was mostly right, even if our timing was wrong. As the classic investing tenet goes, it's better to be mostly right than precisely wrong.
The 3 Classic Investing Tips
On that point, it's worth repeating the 3-pronged approach to investing we wrote about 12 months ago. It's just as relevant today as it was then…
1. It's very difficult to time the market bottom
Just because shares have fallen and valuations are low, does not mean they can't fall further. So if you're going to need the money in the next three to five years, there are safer places for it than the stock market -- try a savings account, for example.
2. Market timing isn't necessary to achieve great returns
You don't have to buy at the bottom to generate great returns. Committing new money to the stock market during times of high pessimism will likely prove a great investing strategy over the next three to five years.
3. Stick to a proven stock-buying strategy
Warren Buffett built his more than $50 billion fortune in large part by purchasing stable businesses in strong competitive positions -- at discount prices. He didn't try to time markets; he just bought shares when they were cheap.
FTSE Up 60%
Fast forward to today, and the FTSE 100 stands at around 5,600, more than 60% up off those 9 March 2009 bottoms. As if to prove the point that it's better to be mostly right than precisely wrong, if you were early, and bought shares at the end of January 2009, you'd still be up a very respectable 35% through to now.
Of course, what matters now is the future. As ever, it's impossible to predict. Stock market-wise, you'd think the easy money has mostly already been made. Certainly the days when the share prices of just about every company were rising precipitously have gone.
Stick To Your Investing Principles
In the long term, valuation and earnings growth are the key drivers of share prices. In the short term, speculation can and does play a large factor, both in up and down markets.
In sharp contrast to a year ago, today we're seeing the market rise on virtually a daily basis. It won't always be like this, just like the market didn't just keep going down, down and down.
Don't get caught in the stock market's web. By all means, buy shares in good companies trading at decent prices. But amidst the excitement and euphoria of a rising market, stick to your investing principles, and to those 3 timely investing tips. They'll serve you well in all markets.
More on the economy and the markets:
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