Market shivers to autumn's chills, thrills and bills

By Derek Pain

Well, at least October is living up to its reputation as a traumatic month for investors.

Well, at least October is living up to its reputation as a traumatic month for investors.

With shares slithering and slipping as confidence appears to seep from the world's stock markets, it seems the wretched month is running true to form.

Why this particular period should embrace such terrors for the investment community is impossible to explain. But on many occasions, notably in the crash of 1987, it has been such a nightmare panicky stock market players have rushed for cover.

So is the upheaval merely one of the stock market's periodic bouts of acute depression or is it something much more serious - such as a long bear run?

I recall the words of a former Stock Exchange chairman, Lord Ritchie of Dundee. When the market had a severe setback in the Sixties - by today's standards it would not make a major impression on the Richter scale - he advised small investors to "put their heads down and let the wind blow over them".

Over the years it has proved to be sound guidance. Anyone who actually picked up shares at that time should have reaped rich rewards.

As I have mentioned on many occasions, this column is for the longer-term investor. It is not directed at the new - and I think unstable - breed of day traders or the nimble-footed professional who changes his investments more frequently than his socks.

But I am not ducking the question about the possibility of a long bear run. As measured by Footsie, shares have been in retreat since the index peaked at the turn of the millennium. Mid- and small-caps fared much better but they have come under intense pressure since hitting new highs last month.

Further falls may lurk but the stock market will, with a flourish, soon get over its nervousness. Still it would appear my year end Footsie forecast of 7,300 points is already out of the window. But the composition of Footsie is not what it was. It is now dominated by a few companies. And it would, for example, need only the shares of BP Amoco and Vodafone to display a little more resolution to transform today's Footsie numbers. The old argument, which served investors well, is that it is worth buying shares at times of stress and strain. This time round is likely to be no exception.

Few shares have fallen more dramatically from grace than BT. At the start of the year they topped 1,500p; last week they were below 700p. Yet long-term investors are still showing handsome gains. Only three years ago the price was under 400p and back in the Eighties below 200p.

BT has many problems. Burdened by debt, it seems to have lost its way. But it has many sound businesses. With changes afoot there is every likelihood its shares will come out of their tailspin and regain at least some lost ground.

National Power is a classic example of a once-friendless share staging a recovery. At one time this year, the price, weighed down by a multitude of worries, was down to 265p. Since then the group has done the splits - creating International Power and Innogy, producing a combined value approaching 500p a share.

This column, as readers will appreciate, likes to highlight small-caps. And there are, even in these gloomy days, little 'uns worth picking up. One could be James R Knowles, a construction industry consultancy, which reported a 132 per cent profits advance to £1.3m last week. To some extent its figures indicated a recovery. But the signs are that it has got its old problems out of its system and further progress should be made this year as the benefits of past changes make increasing contributions to profits.

The company seems to be expanding on all fronts and is reaping benefits from a new adjudication process in the construction industry.

The shares, at 38p, have enjoyed a good run since the figures were rolled out. But they touched almost 100p after being floated at 80p, before a profits warning, stemming partly from over-expansion, crash-dived the shares to 22.5p.

The stock market does not like being wrong-footed. And I suspect it will be some time before Knowles is forgiven.

But last week's figures are a good start and, despite the company's understandable reluctance to make too-optimistic noises, a strong profits advance seems assured this year.