Simon Read: Ignore the Footsie's fluctuations, just think long term

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The Independent Online

Should you start to panic when you see the Footsie fall below the 5,000 mark? It's actually dipped below that level several times this week, yet as recently as March it topped 6,000. For anyone with investments in the stock market – and that includes just about everyone with a pension – it's worrying. Is it a crash? Will markets fall further?

They may do, but that doesn't mean you should rush to act. The stock market is volatile and will always be so. Anyone buying or selling shares on the basis of a snapshot of prices is likely to end up trading at the wrong time. The stockbroker TD Waterhouse reported record trading activity in the past week as some sought to flee falling markets while others saw the opportunity to snap up bargains.

Interestingly, the most popular share to buy among private investors was the same as the most popular share to sell: Lloyds Banking Group. With banks being hit the most by the US credit re-rating as well as continuing eurozone worries, it may seem logical to sell Lloyds shares. But plenty of folk obviously feel that the price is right to get in before the share soars again.

Will the sellers or the buyers be proved right? Only time will tell. Some may make a killing and think they've unlocked the key to successful stock market investing. But they'll only have that satisfaction until the next time they take a massive bath.

Serious investors should ignore the fluctuations and think about the long term. If you start to trade according to news headlines, you will end up taking too much of a gamble. Of course there are plenty of regular investors who have a healthy stash of "play" money that they use to try to make a profit from markets. Times such as these are catnip for such people.

For the bulk of people who rely on stock market investments for pensions or long-term financial planning, market volatility is not a time to play. It can be a time to take a look at your portfolio and decide whether certain holdings are worth keeping or, indeed, if there are new holdings that could prove worth a punt. Will Lloyds, for instance, prove a good bet once the current financial crisis is over and the bank – still largely owned by the Government – has been sold back to private investors? If you believe it will, you should be thinking about sitting on the shares for a couple of years, not reacting to this week's news.

The same is true of any other stocks you may hold. Sure you should take profits or cut losses, but not panic trade. Have target prices – both up and down – and if shares hit those, then that could be the trigger to trade. But don't get caught up with temporary market sentiment.

And if you feel uncomfortable about the fluctuations of the past few days, then maybe you should get out of shares altogether. Meanwhile gold has continued its seemingly inexorable rise, at one stage this week topping $1,800 an ounce.

It is seen a safe home against the background of world market turmoil, but can the price continue to rise? There seems no point in warning of a gold bubble. I called the peak at $1,200 and again at $1,500 and have twice been proved wrong. Perhaps if I predict that it'll top $2,500 by the end of the year, it will finally run out of steam.



British Gas has followed Scottish and Southern Energy's lead in scrapping doorstep sales. That's good news, although BG has only suspended doorstep selling for three months. The process should be scrapped by all the energy companies.

Adam Scorer of Consumer Focus points out: "For over a decade, cold-call doorstep sales have led to hundreds of thousands of people paying more for their energy after switching to a worse deal."

Doorstep sellers rely on pressurising people to switch there and then, but I'd be surprised if anyone who has done so ended up better off. The best deals are invariably found online. "Energy firms have had years to get doorstep sales right," says Scorer. "But they have failed to deliver. Unless other energy firms realise the end of the road has been reached on cold-call doorstep sales, mis-selling will continue to drive consumer mistrust even deeper."

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