Trading volumes are a good measure of market activity, and sometimes of sentiment. Presently they are at very low levels, indicating many investors are sitting on the sidelines. Another way of looking at it is most market participants have established their strategy and are sticking with it.
These "thin" volumes also tend to exaggerate market movements, both up and down. Instead of examining a fund this week, I thought I would concentrate on the potential problems this causes and the strategies you could adopt.
The first thing to make clear is that no one knows what the outcome of the European crisis will be. This is obvious, but important: Nobody has an edge on you over this.
It is also worth acknowledging that beyond the issues in Europe, we have the potential problems in China of slowing growth, a potentially volatile situation in the Middle East and, at the end of the year, American elections coupled with decisions about the US debt ceiling.
So there is plenty to think about – enough to make anyone bearish! Indeed, some commentators have told me they see the FTSE 100 falling to around 4,000 points. If you feel strongly that it will, clearly the best strategy is to sell and buy back in.
However, I am not convinced. The market is already inexpensive, and for me this is akin to gambling. No one knows how far the market might fall or whether it has already fallen enough. We are also in an era where politics as much as economics is influencing markets. As we all know, politicians can make up the rules as they go along, and the act of printing money through quantitative easing is one example of how markets can get a short-term shot in the arm.
So where does that leave the investor? Clearly, if you have strong feelings and reckon that you can time the market then you already know what to do. Yet it is very easy to jump into an emotional decision and then find yourself whipsawed if the market moves against you. Remember, you have to make two correct decisions. First your decision to sell has to be timed correctly. Then you have to buy back at the right time. If either of these is wrong you are likely to end up worse off.
When discussing this with investors I am usually asked what I am doing with my own portfolio. I have stayed invested but have let cash accumulate from my investment income. I have been maintaining between 10 per cent and 20 per cent in cash in recent months. Being older, and somewhat risk averse, I also have some money invested in absolute funds such as Cazenove UK Absolute Target, Melchior European Absolute Return and Jupiter Absolute Return. In addition, I do favour more stable, income-producing areas including equity income and corporate bond funds. I tend not to buy accumulation units, letting the income build up as cash giving me a choice over where to invest later. I strongly suspect there will be an excellent buying opportunity sometime this year – perhaps upon greater clarity emerging from Europe.
For what it's worth, I believe a Greek exit wouldn't solve anything. If it happened there would have to be a robust firewall around the far larger and more important economies of Spain and Italy. If the crisis spreads to them things would become difficult.
Letting the Greeks exit sets an awkward precedent. If I was Spanish or Italian I would already be shifting money into currencies such as US dollars or Swiss francs just in case. A Greek exit would surely accelerate this flow to a torrent, which would be catastrophic for the already embattled peripheral European economies. So if the monetary union is to stay together it may as well include Greece as the consequences of an exit would be much worse.
I am a Eurosceptic but don't underestimate the political will to avoid a break-up. It would be hugely expensive, especially to the Germans.
In a fast-moving situation like this you need to keep close to what's happening in the markets. If you haven't invested, but are waiting for the right opportunity, the best piece of advice I can give you is be ready. Make sure you have a clear idea of what you want to buy and at what price – and be in a position to do so quickly and efficiently. If your money earmarked for investment is in a 30-day notice account, say, you could miss any rally that suddenly arrives.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent