Sam Dunn: Even in stormy markets, one investor's panic sell can be another's shrewd buy
Sunday 19 August 2007
A slightly panicky friend cashed in an equity individual savings account (ISA) last week. His brother, on the other hand, invested roughly £2,000 in one.
Their motives mirrored each other – to make what they thought was the best use of their cash – and were prompted by the same event, the seesawing stock markets.
So who was right?
The answer is that it's the wrong question to ask.
Knowing when to buy and sell, and what kind of funds or shares to get involved with, is the biggest conundrum facing City analysts, fund managers, stock brokers and researchers every working day. But for most ordinary investors, the most important question is: "Why you are in the stock markets in the first place?"
It's hardly a secret that different reasons for investing in the stock markets require different attitudes and mindsets, yet too many people stick money in an equity ISA or buy a job lot of shares without really knowing what they want to achieve by doing so.
Often, their family or friends have suggested it as a way to simply use up spare income. Or an advert – usually depicting some sort of glossy dream image of making mega-profits – in a magazine or newspaper has caught their eye and sparked a decision to take a punt on the latest fad fund: commercial property funds, emerging markets or China, say.
I've walked into this trap myself.
In early 2000 – well before I developed a proper and professional interest in my personal finances, I hasten to add – a good friend kept eulogising his latest ISA fund and how he'd made nearly £1,000 profit over the past eight months or so.
Sucked in by his enthusiasm, and keen not to miss out on the financial party that he was so clearly enjoying, and despite my large debts that I should have paid down, I invested in a similar fund that looked pretty whizzy and sat back to watch the returns roll in.
You'll have guessed that I didn't see any for years – three and a half, I think – as the FTSE 100 began its long downward march after the dotcom bubble burst and 11 September 2001 put paid to plenty of market confidence.
Only after the Iraq war, in March 2003, did the FTSE 100 begin to climb back, and only then did I begin to get any kind of performance in the fund.
Hundreds of thousands did the same, and many won't forget how the seemingly unassailable stock market rises suddenly crumbled and left their investments looking rather threadbare.
What I should have done was stop and think about why I was investing – pure greed – and what I wanted out of the deal – instant riches – and, hopefully, I'd have realised my folly and thought again.
In theory, a trip to an independent financial adviser might have put the brakes on. But the prevailing attitude at the time – "fill your boots before somebody else does" – would probably have seen a recommendation for some sort of lower-risk fund, and, anyway, the adviser would have been eager to pick up my commission.
The upshot, to quote an adage beloved of the wiser financial advisers, is that it's "time in the market, not timing" that is more important.
An equity ISA is a long-term commitment of at least five to 10 years in order to ride out storms like those that engulfed the markets last week. They're designed to bolster a pension; build up long-term savings; generate funds for a child's university costs; act as a pot of emergency rainy-day money.
Anybody keen to play the stock market should opt for shares or even more esoteric vehicles such as contracts for difference that allow you to try and make money on share-price movements without buying the equity itself.
However, that's not to say that you should pick an equity ISA fund for your long-term goal and leave it to tick over. Monitor its fortunes compared to those of rivals (on websites such as www.trustnet.com) and be prepared to switch into different funds if it persistently underperforms its benchmark.
Practicality, not panic, is a better watchword.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Apple has been hit by complaints about the 1.1GB download
Much-loved cartoon character returns - without Sir David Jason
Liam Neeson's Downton dreams
Matt Smith is set to join cast of the Jane Austen classic - with a twist
Actress to appear in second series of the hugely popular crime drama
Olympic diver has made his modelling debut for Adidas
- 1 Thailand beach murders: Thai PM suggests 'attractive' female tourists cannot expect to be safe wearing bikinis
- 2 Scottish independence: Learn from Quebec's mistakes and beware of promises. Vote Yes.
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Revealed after 75 years of secrecy: 'Fifi' the glamorous WW2 special agent who tested British spies' resolve
- 5 Have you heard about the film Singapore has banned its people from watching? Well, you have now
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
iJobs Money & Business
£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
Day In a Page
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony