Expert View: A strange thing happened to me ...

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I did something I haven't done in years last week: I bought some shares. I was buying back a "blue chip" sold in July 2000, and at the current price got nearly four times as many shares for my money. Bottom-fishing should be a crucial part of the professional investor's armoury but right now all too few seem willing to be brave. Will we ever crawl out of this bear pit?

I did something I haven't done in years last week: I bought some shares. I was buying back a "blue chip" sold in July 2000, and at the current price got nearly four times as many shares for my money. Bottom-fishing should be a crucial part of the professional investor's armoury but right now all too few seem willing to be brave. Will we ever crawl out of this bear pit?

Last week, the plunging London stock market touched a low point last seen in 1967 when the dividend yield on shares was barely greater than the interest paid on government bonds. What has gone wrong? The bursting of the dot-com bubble, the world- wide economic slowdown, and the fears of war and terrorism are obvious causes.

But at the same time, to lose faith in equities now is tantamount to losing faith in the whole capitalist system. In buying shares, we are lending our capital to the managers of enterprises to create wealth. Boarding this train must inevitably offer investors a higher return than sitting on the station in cash. It's just a question of spotting the right moment to get on (and, only rarely, get off). After the longest bear market in over 100 years, the waiting room is for wimps.

A leading pensions journal interviewed me last week, asking: "Is this not the moment for UK pension funds to reassess their commitment to equities?" Quite simply, no: that moment was back in 2000. Leaving aside tax/liability concerns, and focusing on prospective investment returns, for a pension fund to ditch equities now is criminal.

We often pride ourselves in the UK on being the most sophisticated investors in Europe. There is indeed a lot to support this claim, not just in terms of the size and scale of our financial industry but also in the elaborate specialisation of the practitioners and commentators who accompany it. However, we are in danger of forgetting some basic principles.

Over-concentration on short-term performance league tables has led to the herd instinct, the bunching of returns, and an obsession with relative rather than absolute gain. It has also driven many of those with the skills to assess management and pick stocks out of the industry. The shrillness of the critics has pushed the performers off stage.

As we bump along the bottom of this bear market, it is interesting to look at the continental attitude. In Stockholm recently, I was struck by just how many significant funds had switched successfully out of equities in 1999/2000 but, quite rightly, instead of patting themselves on the back, were watching markets nervously. They realised that being out of the market was not in any sense a "neutral" position, but in fact one of high risk. They are either buying on the dips or phasing purchases chronologically

The Swedes have this attitude because they have to. Historically, all pension funds have favoured domestic investment in order to avoid currency risk. British pension funds are lucky that this country's superior economic performance and the diversity of its stock market have meant it has fared much better than some others. By contrast, the Swedish market is now down more than 70 per cent.

Fortunately, there is little evidence of the UK private investor selling equities at the bottom. He/she has simply been on a buyer's strike, accompanied by a very understandable return to "bricks and mortar". The UK's tax system discriminates against shares and in favour of rental property. Chancellor Gordon Brown has only himself to blame if this prolongs the bear market and worsens any coming property crash.

I'm starting to enjoy this bear market; it is a time for the brave. I'm looking forward to the coming week. I think I might buy some more shares.

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