We don't want a little, know-all leprechaun

THE LATEST NEWS FROM THE MOTLEY FOOL

Wouldn't you love it if some leprechaun rang a bell when the market reached its peak? And the same leprechaun would then ring a bell with a slightly different tone when the market hit the bottom. That would make the lot of all stock-market investors a very happy one.

Apart from being impossible, it wouldn't half make investing boring. Rather than make for efficient markets, the exact opposite would happen. It is impossible to time the market. Buying at the bottom and selling at the top is something we can all do once or twice, but no -one can consistently achieve that feat. There is almost as much chance of winning the lottery.

Timing the purchase and sale of shares in individual companies is just as difficult. Take a look at Admiral, the very successful IT services group. On Tuesday, it reported another set of impressive annual results, with earnings per share (EPS) rising by 43 per cent. Despite that, the shares fell from 1428p to 1290p, or 9 per cent on the day, and followed that up by posting another triple-digit fall the following day. The market didn't like the fact that the company failed to beat broker expectations and it also feared that the rate of growth the company has achieved in the past was unsustainable.

The words from Clay Brendish, the executive chairman, that "1999 will be an interesting year" may have done the damage to the share price. If shareholders had heard the leprechaun's bell toll on Monday evening, they would not be nursing a 16 per cent, two-day fall in the value of their investments.

On Wednesday, the FT-SE 100 charged through its previous closing high, reached in July last year. For how many years have experts and novices alike been saying that the markets are at a peak, especially the US Dow Jones? Those people should never invest in the market, because they don't understand the value of time and compounding returns.

Sure, history says that a price earnings ratio in the high 20s is unheard of, but then the stock market has been breaking records ever since it was invented. If you said to people in the early 1990s that the FT-SE 100 would pass through 6000 before the millennium, they would have had you certified. Likewise, if I said that the index would fly through 20000 in 2011, you would think I was mad. But to achieve this "only" requires compounding returns of 11 per cent per annum.

We Fools don't profess to know which direction the market is headed, in the short term. There could be a financial crisis brewing in any part of the world right now that will send the markets into a tailspin. Alan Greenspan, chairman of the US Federal Reserve, has hinted that the next move in domestic interest rates could be upwards. As interest rates rise, disposable income falls - and equities suddenly do not look as attractive as other forms of investments. This sort of scenario triggered the share market crash of 1987.

One thing Fools do know is that, over the very long term, equity markets rise. They have easily seen off 1987, so much so that it hardly registers a blip in share market graphs. At the time analysts were pronouncing the death of equities.

There is no doubting that, based on history, world markets currently look high. If you are worried about "the crash" - and you've probably been worried about that since you began investing - then simply extend your investment time-frame. Time is the friend of the patient investor.

n www.fool.co.uk

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before