There’s a lot we can worry about in the financial markets right now, but there’s always a lot we can worry about.
Nevertheless, share prices and financial markets tend to rise over time driven by the operational progress of the enterprises underlying shares – stock markets tend to climb a wall of worry, goes one popular maxim.
Gathering clouds
My own personal wall of worry lately has been things such as the emergence of trade tensions between the US and China; slowing growth in China; negative interest rates in parts of the world; the threat of a new nuclear arms race; a proliferation of company outlook statements predicting macroeconomic and political challenges ahead; the downtrend in the price of copper, which is sometimes seen as an early warning of the slowdown of economic activity around the world; and other things.
And it’s not easy to keep the faith with shares when the major stock indices on both sides of the Atlantic are as volatile and prone to reversals as they were last week. And my honest view is that buy and sell decisions are very personal things, and a lot depends on your own investing strategy and the strength of conviction you have about your individual shareholdings.
Holding quality
However, to me, the best approach to investing involves taking a long-term view around holding shares and share-backed investments. If you do that, it’s a lot easier to hold through volatile periods such as we are seeing now, especially if you select your investments with an emphasis on quality.
But if you find yourself holding highly speculative shares with zero earnings or over-priced cyclical stocks that are vulnerable to downturns in the wider economy, it will be harder for you to hold on in choppy markets. And maybe in some cases, you shouldn’t.
On the other hand, if you are holding quality stocks with underlying businesses that enjoy a strong trading niche and a lesser exposure to cyclical influences, holding tight is probably your best bet. In fact, if you are holding great shares like that, market volatility can often be seen as a good thing because it can throw up opportunities to add to your holdings at a better valuation.
Building a watch list
As well as good-quality shares, I’d count index tracker funds as decent vehicles for a long-term investment, such as those that follow the fortunes of the FTSE 100. If the FTSE 100 dips down, it’s always proved to be a decent buying opportunity in the past because it has so far always bounced back. In fact, drip-feeding regular new money, perhaps monthly, into a FTSE 100 tracker that automatically reinvests dividends is a great way to compound long-term wealth, in my view.
Right now, though, I’m busy building my watch list of great, good-quality shares so that I’m ready to pounce if the market offers me a bargain. And I’m not selling anything, however much the markets gyrate in the weeks ahead.
