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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Investors told to travel the world in the search for higher returns
Is having individual billionaires good or bad for a country's economy?
House prices plummeting in London's most expensive boroughs, but going up in the suburbs
Peer-to-peer lending rates put Nisas to shame
The most expensive cities in the world 2015
- 1 Hair loss explained: How and why men go bald
- 2 Game of Thrones season 6: Jon Snow theorists believe Ned Stark's son may have a twin sister
- 3 Artist takes LSD, draws herself over different stages of the 9-hour trip to show its effects
- 4 iPhone 6s camera: features to include 4K video camera and flash for selfies
- 5 A pint of water every day is the key to losing weight, scientists say
Dresden riots: Protesters in Germany attack refugee buses shouting 'foreigners out'
France train shooting: US soldiers speak of the moment they stopped gunman and 'beat him until he was unconscious'
Labour leadership: Jeremy Corbyn accused of 'deluding' young supporters with 'claptrap'
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...
Day In a Page
In an elevated position above the bay, this four-bedroom home offers sea and headland views. There is a decked balcony and sun terrace - plus coastal walks on the doorstep.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.