You don’t need me to tell you that these are troubled times. On all sorts of fronts — political, economic and security — there are dark clouds on the horizon. Naturally, investment markets are reflecting the gloom. Emerging markets? Gloom, gloom, and more gloom. Mining and oil stocks? Gloom, again. Retailers? That would also be more gloom. And so on, and so on. And, equally naturally, my own portfolio is mired in the same malaise. Taking a quick look at it just now — ouch! — I see that only two stocks have risen today. In short,…
You don’t need me to tell you that these are troubled times. On all sorts of fronts — political, economic and security — there are dark clouds on the horizon.
Naturally, investment markets are reflecting the gloom. Emerging markets? Gloom, gloom, and more gloom. Mining and oil stocks? Gloom, again. Retailers? That would also be more gloom. And so on, and so on.
And, equally naturally, my own portfolio is mired in the same malaise. Taking a quick look at it just now — ouch! — I see that only two stocks have risen today.
In short, there’s more than a whiff of 2008 in the air.
That said, it’s all too easy for gloomy investor sentiment to become self-reinforcing. Which is precisely what leads to boom-and-bust cycles, of course.
In the good times, people think that the party will never end — think about the dotcom boom, for instance, or the property boom of 2004-2005. Cheap money and excessive optimism never make for good bedfellows.
And in the bad times, market sentiment then over-compensates on the downside, with excessive gloom leading to excessively low valuations. Back in early 2009, for example, investors could pick up GlaxoSmithKline on a P/E ratio of just 5.
So here, in no particular order, are three reasons for investors to be a little more cheerful than they may have been.
Let’s start with that gloom. Because perversely, of course, this is what we as investors are supposed to be waiting for — moments of pessimism when shares can be bought cheaply.
And certainly, as I’ve just mentioned, there are a number of sectors where there’s no shortage of precisely that pessimism.
Consequently, there are interesting opportunities opening up, with shares in some sectors testing 2008-2009 lows, despite the underlying economic conditions being very different.
And, moreover, testing those lows at a time when the FTSE 100 as a whole is up 80% from its nadir in March 2009 — a differential that certainly ought to be focusing investors’ minds.
As you may have read last week, legendary investor Jim Slater has passed away, at the age of 86. His columns in the Daily Telegraph were rightly praised, and his book The Zulu Principle underpins many investors’ thinking even today.
I’m old enough to remember the Slater Walker era that brought him to fame, which means that I’m also old enough to remember old-style ‘full service’ brokers — together with their eye-watering charges.
Indeed, it was to avoid paying those charges that many of my investments in the 1980s were put into unit trusts.
No longer: a new generation of low-cost ‘execution only’ brokers has come into being — so called because they don’t offer research and advice on what to buy and sell, they just execute trades on your behalf. And they are much, much cheaper.
As a case in point, I have in front of me a contract note for a £1,000 purchase of Marks & Spencer, dating from 1992, citing a minimum commission of £31 — a sum, taking into account inflation, that would be around £57 now, according to the Bank of England’s handy inflation calculator.
Yet today, investors can place orders for just over a tenner — or even lower, on brokers’ ‘bulk buy’ cheap dealing days.
In short, when opportunities beckon, the frictional costs of making those investments (and profiting from them), are much, much lower.
Jim Slater, I’m sure, would have approved.
Finally, it’s one thing to be able to inexpensively exploit investment opportunities, it’s quite another to be able to spot them in the first place.
But yet again, investors today have reason to be grateful. Thanks to the internet, vast amounts of digital data, fact and opinion are just a click away.
The contrast with the 1970s, when I bought my first ever share, are remarkable. Back then, free share data was almost non-existent — a copy of the Financial Times in the public library, perhaps. Digital data, or even paid-for data, were largely beyond the reach of ordinary investors.
For those who remember the Teletext and Ceefax services — long since switched off — its biggest advantage to ordinary investors was the almost-live share price information that it quoted, although one had to wait for pages to cycle through and refresh.
Reasons to be cheerful
In short, amid the gloom, investors have distinct reasons to raise a glass of cheer.
The FTSE as a whole is down 15% from its recent peak, with some shares and sectors down much more. It’s never been cheaper to buy and sell stocks, and there’s a wealth of information to help you research which shares to buy — and why.
What’s not to like?
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Malcolm owns shares in GlaxoSmithKline, The Motley Fool UK has recommended shares in GlaxoSmithKline.