The Greatest Challenge For Today's Nervous Investors

Published in Investing on 24 April 2012

It's time once again to see a market fall as a buying opportunity.

Well, he did warn us.

"Forget Greece, Worry About France Instead!" he began, then adding:

"...When one crisis is over, there's usually another one just around the corner, and the next trigger could very well be the French presidential election on 22 April. That's because the current favourite is proposing policies which, if implemented, are all but guaranteed to create a new eurozone financial crisis with France at its core."

So wrote Fool writer Tony Luckett at the start of this month.

Like you, perhaps, I'm wishing I paid more attention to Tony following the fall-out from the French elections and yesterday's 100-point FTSE slump. So far during April, we've had three occasions when the index has registered a triple-digit plunge and I now regret being a bit too eager to buy earlier on in the year. FTSE 6,000 indeed!

Throw in the weekend's collapse of the Dutch government and some forthcoming Greek elections as well, and it seems clear to me all those crazy euro-politicians now seem hell-bent on giving us yet another summer share slump.

And just so you know, St Leger Day this year is 15 September.

Joe, Jean, Jose and Giorgos

Still, I'd rather be Joe Punter here in Britain with a FTSE floundering once again at 5,700 than having to battle with shares in Europe.

While our blue chips have lost 5% or so since their March peak, poor old Jean Punteur in France has seen his valeurs de premier ordre thumped 14% during the same time. Meanwhile Jose Punteros has watched his Madrid-traded stocks collapse by 19%, almost putting his portfolio firmly into mercado bajista territory.

And if you think that's bad, spare a thought for Giorgos Punteropoulos, who probably couldn't care less how his shares have done this year -- given the Greek market has been crushed 83% since the start of 2008.

News just in... there is hope

Yet despite what the euro-politicians have thrown at us, I see hope. Some points to think about:

  • Just yesterday we were told company dividends rallied 25% during the first quarter, and could rise by 8% for the year as a whole. That does not sound like the end of the world to me.
  • Many larger companies are still progressing well. Just this morning, I see ARM Holdings (LSE: ARM) has reported profits up 22% while Associated British Foods (LSE: ABF) has lifted earnings by 5%.
  • Many smaller companies are still progressing well. Just this morning, I see Smiths News (LSE: NWS) has raised earnings by 14%, while Carr's Milling Industries (LSE: CRM) has lifted profits by 31%.
  • Major blue chips are showing confidence by splashing their cash. Today we see Royal Dutch Shell (LSE: RDSB) agreeing to buy Cove Energy (LSE: COV) for £1.1 billion, while yesterday we saw Vodafone (LSE: VOD) offering to buy Cable & Wireless Worldwide (LSE: CW) for £1 billion. And last week, we saw GlaxoSmithKline (LSE: GSK) rebuffed after offering £1.6 billion to buy Human Genome Sciences (NASDAQ: HGSI.US).
  • Anybody holding Cove, C&WW or Human Genome at the start of this year won't be worrying too much about French politics today. They're looking at year-to-date gains of 94%, 123% and 97% respectively.

A repeat of last year's buying opportunity

We saw last year how quickly markets can turn. News goes from bad to worse and, before you know it, the market's lost 10% in a week.

In a downturn, many investors will, of course, give up and sell out at any old price (once again), just to rid themselves of the ruthless psychological pain of an ever-dwindling portfolio. Indeed, a few more 100-point slumps like yesterday, and I'm sure we'll start to see the towels starting being thrown.

But if we learnt anything from the panic days of last summer -- or the really dark days of the banking crash -- it's that you need courage and bravery to be a successful stock-market investor. In fact, the masters have always told us to be greedy when everyone's fearful, buy when there's blood in the streets and buy at the point of maximum pessimism.

The guru told us to buy

True, we're not exactly at the point of maximum pessimism just yet, but such 'contrarian' advice generally works in practice. Just recall the actions of City super-investor Neil Woodford, who in the midst of the Greek-debt crisis last year claimed there was a "once in a decade opportunity" to buy high-quality shares.

That courage to back top-notch companies at attractive prices -- despite the wider sovereign-debt worries and all the market turbulence -- generated Woodford healthy rewards. With dividends reinvested, Woodford's funds gained 12% last year, versus a 3% index fall.

Now I don't know about you, but I'd love to score such healthy share-price gains in a downturn.

Your challenge

All told, there are no easy answers in this market, in this economy and in this ongoing euro-debt mess. The future, as ever, remains uncertain.

But that shouldn't stop you and I investing in the stock market. People easily forget that, even in the good times, the future is uncertain. Tony Luckett warned us about the French elections, but just exactly what long-term effect they'll have on the wider eurozone -- or our own market -- remains to be seen.

All we can do, like Neil Woodford, is to find good-quality companies at cheap prices and hold for the long term. It's certainly a challenge to find that type of investment, although it's by no means impossible. Buying such investments when the market is falling is certainly another challenge, as the siren doom-mongers can be very persuasive.

However... buying quality companies -- and then holding on in the face of subsequent market falls -- can test even the most seasoned of stock-pickers. That perhaps is greatest challenge for today's nervous investors as those euro-politicians stir the debt crisis further.

> If you're looking for share ideas with promising long-term potential, join our Motley Fool Share Advisor service free for 30 days, and enjoy immediate access to all of our research and recommendations. You have no obligation to subscribe.

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richjfool 24 Apr 2012 , 12:50pm

Some buying opportunities yesterday then!

ngata 24 Apr 2012 , 1:13pm

Still plenty of bargains today.

oxoxoxo 24 Apr 2012 , 1:16pm

And more to come in the not-too-distant future as well, I'd say/hope.

LiberalThug 24 Apr 2012 , 2:01pm

What are peoples thoughts on buying more of Man Group? Surely the 15+% dividend must pull the price up, or the board will have to reverse it's pledge to honor the payout? And UBS today has marked it for a possible M&A.

Worth a punt here?

snickerdoodle9 24 Apr 2012 , 2:06pm

Beside using market pullbacks as buying opportunities , portfolio diversification is a must . I am diversified among companies ( 10 ) paying high yield dividends and corporate bond/blue chip companies ( 6 ) . When those companies pay out the divvies I reinvest them . As always I do the " homework " before I decide whether to add a company to my portfolio . Diversification has definitely made a difference in my surviving major stock market sell offs and lets me sleep worry and stress free !

ALMAC55 24 Apr 2012 , 2:11pm

Living and paying tax in France I fear for a Hollande victory, but whilst it is clearly Hollande's election to lose, don't discount Sarko, if he can get across the message that Hollande & the P.S. will bankrupt France, if they follow through with their election promises. I am holding onto my high yield portfolio, and nursing the losses on my miners, but keeping my remaining cash ready for hopefully some 'one in a generation' buying opportunities later on in the year, but I would prefer more stability and a quieter life!

AidyLee1 24 Apr 2012 , 2:27pm

Man Group - well its a gamble that almost had me tempted, as it appears very undervalued. However the divi yield is more or less wiped out by the jumps in price, and worryingly despite their losses, they are honouring these dividend payouts with their spare cash. That can't go on forever! Merger rumours... well rumours are all they are - nothing concrete, just speculation. The facts however speak volumes - Man is losing a number of clients... and coupled with Euro-debt... it's prospects don't look very good.

CunningCliff 24 Apr 2012 , 2:42pm

You should buy now only if you believe that further falls are unlikely. As I expect more falls in the FTSE, I am not a buyer yet.

See my list of worries at the end of this piece:

"What about the impact of next month's general election in Greece? What about the €450 billion of debt Italy has to roll over this year? What about the near-12% yield on 10-year Portuguese bonds or the 6% Spain is being forced to pay? What about the strong possibility of another eurozone downturn?"

Cliff 'Doom and Gloom' D'Arcy ;0)

siriusj 24 Apr 2012 , 2:46pm

Man group should fall further tomorrow as it is ex-div day.


apprenticeDRL 24 Apr 2012 , 2:50pm

LiberalThug - MAN are a gamble, but I think the company fundamentals are still reasonable. I purchased some for my ISA last week at 95 (should have waited for 93 but cest la vie.

The following link on the discussion board Paulypilots pub provides some interesting information

If you want the dividend you will have to make a quick decission as they go ex div tomorrow (25th).

mcturra2000 24 Apr 2012 , 3:16pm

"we're not exactly at the point of maximum pessimism just yet"

That's right, we're not. Just because the stock market went down 2% yesterday doesn't mean that it's now a screaming buy. The VIX currently stands at 19.11, almost exactly in line with historical averages. Markets are only down about 5% from this year's high. When the market is down 20%, and the VIX is at 30%, THEN it's time to fill your boots. We're a long way off from that. Maybe a long way off - years away, perhaps.

So, how lucky do you feel with your market timing? If you're a market timer then now would be a good time to sit on the sidelines. If you're not, then all the time is a good time to buy shares, and you can never take advantage of market swings, because you're fully invested.

apprenticeDRL 24 Apr 2012 , 3:28pm

re MAN group - just another thought if you are just looking for a high yield then RSA may be a better bet, the share price is depressed at the moment (about 101 last time I looked). But they are probably safer than MAN with a yield of nearly 9% and reasonable dividend coverage.

jeff700 24 Apr 2012 , 3:41pm

Sod equities ! Gold's recent pullback is the opportunity for big gains.

rober00 24 Apr 2012 , 4:03pm

I have been in and out of Man over the past 10 years at a nice profit, but not his time!!!

In general I am fully invested and see no need to "churn" in the current climate. I am happy to leave that to others less caring of their costs.

ArkWelder 24 Apr 2012 , 7:26pm

And if you think that's bad, spare a thought for Giorgos Punteropoulos, who probably couldn't care less how his shares have done this year

Probably not as the Athens index is up just over 4% this year. FTSE100 -0.6%, All-Share +0.7%. Yahoo finance. Does not include re-invested income.

OsbieFeel 24 Apr 2012 , 9:22pm

I bought a wodge of Man Group recently at 115p, thinking it was oversold. So much for that idea ...

All the same, I bought a second wodge yesterday at 95p, in time to scoop the dividend. I didn't get where I am today by learning from my mistakes!

UBS target price is 140p, for what that's worth. Even if there's no takeover, Man has plenty of cash, and a buyback would seem prudent at current prices. And failing that, there is at least a commendable comitment to return cash to investors.

Anyhow, I'm just too young and good-looking for safe investments!

goodlifer 24 Apr 2012 , 11:59pm

The only times Footsie ever goes down seems to be when you experts think it's about to go up.
And vice versa.

Obviously, as a dividend reinvestor, I hope you're right this time.

Let's all hope Footsie plunges good and low, and stays there for five years or so.

thairet 26 Apr 2012 , 3:57am


I have done almost exactly the same as you give or take a few pence. Horses for courses of course(s) . I consider myself just to old and ugly for safe investments!

timg7777 29 Apr 2012 , 12:22am

In battle of the S&P, can bulls gain the edge?
2012 will be the greatest year for the stock market since 1995. No significant pullbacks. Apple at 1,100 by December. I am worried about 2013.
My market strategy this days: just track the smart money movement..
How?I’m using Algorithmic systems (like “ I Know First” or “TW” ).
For example:
I saw the smart money movement on March 29 and bought AIG .
AIG rose by 16% in 1 month!
Good luck!

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