Another day, another dollar

So, three months ago you thought you were going to be the next Martha Lane Fox? And now you're not - thank heavens. But what does the future hold for small-time stockmarket players? Four financial gurus tell it like it is.

Sell in May and go away. It's an old City adage and it seems that the private investor has never been more tempted to follow the advice than in this Millennium year. Markets around the world, and particularly in Britain and the United States, have been experiencing a roller-coaster ride which has left everyone breathless and bemused.

Sell in May and go away. It's an old City adage and it seems that the private investor has never been more tempted to follow the advice than in this Millennium year. Markets around the world, and particularly in Britain and the United States, have been experiencing a roller-coaster ride which has left everyone breathless and bemused.

Since last autumn hundreds of thousands of people - ordinary folk who apart from maybe a privatisation or a demutualisation windfall have never had any dealings with the stockmarket - have been dipping their toes into the investment market.

They came in at exactly the right time. The technology boom was suddenly upon us and everything seemingly turned to gold. Penny shares became pounds, then tenners, then scores. The cost of doing deals reduced to insignificance. Forget the National Lottery, boycott the racecourse, keep out of the casinos - the stockmarket was the only sure-fire gamble in town.

Of course it couldn't last. We all knew that, nothing goes on for ever and all the adverts told us that shares can go down as well as up. But, rather like hearing a motorway traffic jam warning on the radio, we kept driving because it didn't really mean us did it? And as we watched those share prices tick up we secretly began to believe we had the Midas touch.

When the turnaround came, about a month ago now, it took us by surprise. Even those who had decades of experience as seasoned private investors were, if we are to be honest, rather taken aback. For some time we had stopped forecasting a fall because our predictions were constantly confounded. Like the new investors we had begun to believe that nirvana had arrived and the big bad bear market was finally dead.

In the last few weeks reality has returned to the stockmarkets, share prices and portfolio values have tumbled, and most of us have ruefully discovered that we are not as rich as we thought we were.

So, what happens now? Where do we go from here? Do we sell in May and go away, never to return? Or do we sell, bide our time and wait for the next bandwagon to come rolling along? Or do we hold on to our dwindling nest eggs and hope that their day will come again?

For opinions and answers I talked this week with four investment gurus, experts who have seen it all before. Chris Ring and Justin Urquhart Stewart are two of the country's most experienced stockbrokers. Jack Murdoch and Mr Mystery (he insists on remaining anonymous) are both private investors who have been making a better-than-respectable living from their investments for several years.

Chris Ring, managing director, NatWest Stockbrokers:

"There has been a market readjustment and some of the stocks, particularly high-tech and internet shares, that rose to incredible heights have fallen just as dramatically.

"Whenever this happens it is a salutary experience for investors and the important thing is not to hide. There's no point in ignoring the change and hoping things will get back to where they were before.

"It is time for all investors to examine their investment strategy and see if there needs to be a fundamental change.

"Those who are invested for the long term should be OK. They chose the constituents of their portfolios for their quality, track record and proven ability to grow steadily. For them, the recent fluctuations are nothing more than unpredictable movements in the market and, over time, they should not have an appreciable affect.

"It is the traders, those investors who follow fashion stocks and are involved in such sectors as media and technology, who should be re-examining their strategy. They have had a good run for their money and a significant proportion of them, because they trade on a regular basis, have locked in real profits.

"Now is the time for them to be sensible. Above all they must not take the approach that I heard from one investor: 'I know this share is showing me a loss but it is only a paper loss. It doesn't become a real loss until I sell it so I'm hanging on.' How naive can you get! Investors should never be afraid to cut their losses.

"I believe the recent downturn presents investors with several opportunities. I am an enthusiast for technology stocks and there has been an over-reaction in the sector that has not taken into account the quality of individual stocks.

"We have clients who are seizing the chance to buy into potentially great stocks they missed first time around.

"In this climate investors should also be looking to buy into sectors that have been out of favour. There are a lot of good old-fashioned quality shares around at the moment. For instance, bricks and mortar seems remarkably undervalued. Builders are turning in excellent results, many of them have first-class land banks and the demand for housing is stronger than ever. Yet the PE ratios are ridiculously low.

"For a really balanced portfolio the investor should be looking abroad, and in particular at Europe. Share ownership on the Continent is becoming commonplace and a lot of exciting new companies are coming to the market.

"I still favour collective funds as the best way of investing abroad. Dealing costs and the problems of obtaining compatible information mean the funds are the safest way to include an overseas element in your portfolio.

"Another good reason is that several excellent funds are now available at a discount.

"My final piece of advice for the private investor: Before you contact your broker to execute a deal decide on the price you are willing to pay or accept. In a volatile market it is not a good idea to buy or sell at whatever price is on offer at that moment in time."

Mr Mystery (an anonymous and seasoned investor who has made millions in real profits from his investments):

"I don't like the market at the moment. It's all too frothy. Hopes and huge amounts of money are pinned on internet stocks that haven't a hope in hell of making profits and without profits a company has no future.

"Some of the valuations placed on technology stocks at the beginning of this year were just plain barmy. The City hadn't seen this sort of frenzy since the South Sea Bubble or tulipmania.

"Now there is the fallout and those who got in at the height of the market are ruing the day they ever thought of going into the stockmarket.

"Normally I would be fully invested now. But I can't feel the market. It's topsy-turvy and I can't predict what is going to happen so I am opting for safety.

"I'm 40 per cent in cash. I have 30 per cent in safe, reliable shares, depressed blue chips such as Alliance and Leicester, Abbey National, Whitbread and Boots. The other 30 per cent is in smaller growth stocks that have low PE ratios."

Justin Urquhart Stewart, director, Barclays Stockbrokers:

"If your portfolio consists of medium and long term investments, chosen for their quality, then place both hands underneath your bottom and continue to sit on them.

"If, in recent months, you have been a speculator then hopefully you have been sensible and harvested your profits. You should not be too upset that the high-tech stocks have taken a beating. After all, you have banked your profits and you are considerably richer than you were six months ago.

"However, if you continued to chase the dragon and did not harvest your profits then learn a lesson from your expensive experience. You should not have been greedy. As shares rose you should have taken out your initial outlay and a reasonable profit.

"The market volatility will continue for some time to come. So this is the investor's opportunity to do his research and sort the wheat from the chaff. Don't follow particular sectors or tracker funds or indexes. Look for quality management and sales potential in individual companies. When you spot the grains of wheat pick them and plant them into your portfolio. In the long run quality will always succeed.

"Above all, stay cool. A relaxed investor makes better decisions."

Jack Murdoch of Glasgow, an experienced private investor:

"In my view the markets today are volatile but stable, if that makes sense. Certainly there has been a correction but, although it may get slightly worse before it gets better, I believe we are close to the bottom of the cycle.

"Having said that, there are still a lot of stocks that are overpriced. I take the old-fashioned view that the PE ratio is important and that the private investor should take particular note of it.

"In recent months we have all become slightly carried away with the euphoria of a bull market and even some experienced investors have ignored their principles in the rush to make hay while the sun shone. But now is the time to take a long hard look at your existing portfolio and ask: 'Do I know and understand what I have bought?'. If the answer is 'Probably not' then it is time you applied colonic irrigation to your portfolio.

"Go back to basic principles. Review each share you own and ask: Do I understand what the company does? Do I believe it has a profitable future? If you don't know it, understand it and believe in it, then dump it.

"So, after you have given your portfolio this enema and sold the stocks that do not fit your basic criteria, what do you do with the proceeds? You take a look at the old FTSE (pre high-tech) and pick low PE stocks from there. But avoid retailers, I think they have a bleak future."

Terry Bond's verdict:

There is a consensus of opinion on a number of the points made by our four wise men.

In the words of Dad's Army's Corporal Jones: "'Don't panic!" We have not experienced a stockmarket crash, merely a correction in certain over-inflated sectors.

Quality should be the basis for all future investments. Buy shares with a proven track record and hold on to them during periods of volatility.

For undervalued shares take a look at sectors which have been out of favour over recent months.

Stop trying to beat the market. Start selecting companies for the their business potential.

Individual points that particularly appealed to me were:

Mr Mystery's advice that we should have a significant amount of our wealth in cash at the moment. We live in uncertain stockmarket times so it would be good to have a cushion of cash for that special situation that may present itself.

Chris Ring's suggestion that the best way to invest in overseas companies is via a specialist fund.

Jack Murdoch's belief that PE ratios are still a reliable measure of a share's value.

Justin Urquhart Stewart's statement that we should all learn lessons from our recent experiences.