WHEN emotions run high and panic grips the crowd, it's nigh on impossible to hear any voice of reason. And there's no better voice of reason right now in the UK than Anatole Koletsky, who has the gift of commonsense to add to his analytical skills as an economist. Writing in the Times this week, he reminded us that about twice every ten years, stock markets become disconnected from economic reality. Or, as he puts it, "stockmarkets can make spectacular blunders".
Evidence supports his point. Wall Street jitters have orchestrated a global stock market meltdown, but conditions in the real US economy have actually been improving. Published US government statistics confirm that economic conditions have stabilised
in all key areas including employment, retail sales and home sales. Most importantly, there was a significant narrowing of the US trade deficit last month.
So despite a record increase in the cost of imported oil in the US, the trade deficit fell, which could mean only one thing – US exports rose faster. In turn, that tells us that at some point over the next year we can expect to hear pessimists admitting they were wrong about their recession predictions.
A fact sheet recently published by Fidelity International said there were times when doing nothing is best when it comes to your stockmarket investments. Taking the US market as an example, investors in the S&P 500 index over the past 15 years to the beginning of June have seen a 9.9 per cent a year increase in their investment, turning £10,000 into just over £40,000. Missing the best two days on average each year actually would have lost you money, leaving you with less than your original investment.
It's a good time to remember the commonsense investing principles of Sir John Templeton, arguably one of the finest long-term investment gurus, who died earlier this month aged 95. Fifteen years ago a friend gave me a pocket book called Ten Principles for Investment Success, known more simply as the Templeton Maxims. It's at times like this his maxims are especially valuable to long-term investors. I list them below and I hope they help steady your nerves.
1The true objective for any long-term investor is maximum total real return after taxes.
2Keep an open mind. Try to be flexible, open minded and sceptical.
3Never follow the crowd. To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.
4Everything changes. Bear markets have always been temporary and so have bull markets.
5Avoid the popular. When any method for selecting shares becomes popular, switch to unpopular methods.
6Learn from your mistakes. "This time is different" are among the most costly four words in stockmarket history.
7Buy during times of pessimism. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
8Hunt for value and bargains. Too many investors focus on outlook and trend. More profit is made by focusing on value. In the stockmarket, the only way to get a bargain is to buy what most investors are selling.
9Search world-wide. If you do you will find more bargains and better bargains than by studying only one nation. You also gain the safety of diversification.
10No-one knows everything. Investors with all the answers don't understand the questions.
One last piece of commonsense went like this: "Time, not timing, is the best way to make money in stockmarkets. The best time to buy is when you have the money available."
• Alan Steel is chairman of Alan Steel Asset Management
The full article contains 626 words and appears in The Scotsman newspaper.
