Private Investor: A much more changeable exchange

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The Independent Online

Every crash has its rallies and recoveries. Is this just one of those or are we really over the worst?

Well, it won't surprise you to learn that I don't have the answer to that particular query. Sorry. However, I do know that, to a fairly large degree, it's actually a bit of a pointless question. The stock market, we may be assured, will always have its ups and downs, some severe, some less so. You ought to be in it, if at all, for the long haul.

Stock markets generally are much more volatile than they used to be. Before all the recent turmoil, investors had become inured to the FTSE 100 index bumping up and down by 2 per cent in a day. In the 1970s, that would have constituted a major ruction; now it's just another moderately exciting day in the markets. By the same token, we may have to apply a new, larger discount factor to our ideas of market turmoil, just because there seems to be a lot more of it these days. Since the Asian crisis of 1997 we've seen the LTCM/Russian turmoil in 1998, the 2000-2003 slump and the tremors in the market this spring. All in all, quite a bumpy ride, really. We should probably be used to it by now.

Every one of these episodes was undoubtedly serious, even with the benefits of hindsight. People got hurt. In the most serious case, shares halved in value between 2000 and 2003 and plenty of our fellow citizens saw their retirement income slashed as a result of this arguably arbitrary set of events. We often treat the whole stock market thing as a great big game where only a few mega-rich types in the City might get hurt but, in reality, what's happening affects the livelihood of pretty much every one of us. And the performance of the markets has not been that spectacular. Even at their peaks this year, equities were still off the levels they saw in 1999 to 2000. On December 31 1999, the FTSE 100 peaked at 6930.20. We may have to wait a while longer to see it back there again.

However, the modern pattern is becoming clear. More crashes, more booms, faster recoveries, more choppiness all round. Although it's equally a mug's game to make money through timing, I do believe that you can usually tell when the markets are really panicking or where technical factors are creating opportunities. We saw this in 2003 when many of the pension funds had to dump equities because of the regulator's rules. We've seen a little of that again lately, because the "black box" computerised investment strategies built into some funds ("quantitative" or "quant" techniques, to give them their correct name) make them sell equities at arbitrary prearranged levels. So you can buy distressed stuff cheaply sometimes, hence my small purchases last week of Northern Rock, Centrica and 3i, all of which I'm now very happy with.

The best idea, though, is to ignore even these sorts of meltdown and keep an eye on the long run; stay invested, buy a little more when things are cheap, and above all keep up a regular saving habit that smooths out equity market gyrations.

However, I think I've identified one share that seems to go up no matter what's going on in the world more generally. I'm referring, of course, to Capita. It's no one's favourite company – how could it be when it's involved in the immensely unpopular business of contracted-out public services, not to mention the evil and hated London congestion charge. Yet as a long-term story it has a good deal going for it from an investor's point of view. It's now got so many fingers in so many pies that it's a reasonably broadly based business.

Capita benefits from the continuing tendency of the British and other governments to privatise anything that they possibly can and the outsourcing boom in the private sector looks set to continue. No foreseeable political change will alter that. And just think about the opportunities more and more city congestion charges and road pricing will offer a firm such as Capita. Plus, sorry to say, the public authorities seem to be such poor negotiators in Private Finance Initiative contracts that Capita and its peers never seem to lose. As a taxpayer and as a motorist I don't have a lot of time for Capita. As shareholder... well, that's different. As I say, one for the long term, and probably the last share I'd drop from the portfolio.

Final thought on the week? Don't panic.

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