Christmas investment sales are extra early this year

I had so many responses to my column of last week that it merits further discussion this week. It was a pleasant surprise that so many financial advisers told me they agreed 100%, and that my message last week was the same as they had been trying to put across to their clients and investors.

The investment scenario is most unsettling for many who don't have a long-term time horizon. How should you be handling these volatile investment times?

Investors invested in world stock markets face continuing uncertainty, and in the week between my two articles the situation has deteriorated even further. Fear of a recession or a depression is written about daily. It's not only equities that have taken a beating, but property markets as well.

Although South African sellers of property have not yet realized that the buyers are not going to pay their price. The question on everyone's lips is whether this is an ideal buying opportunity because shares are trading at prices far below their true value.

I can tell you with confidence that there are some outstanding buying opportunities out there, some real bargains to be had.

Warren Buffet in the US and Allan Gray in SA have always had a similar philosophy, and that is to buy shares when they are undervalued and then hold on to them.

Buffet recently invested $5bn in Goldman Sachs. Did he buy too soon — and if he did, does it matter? If you have a long-term time horizon buying a little too soon should not matter in the long term, as if you invest in undervalued shares you will benefit from the capital gain when share prices rise to their fundamental value or beyond.

You could also be buying good dividend income that is likely to continue. For the man in the street who does not have the knowledge it is essential to use experts — not ones who can predict market crashes but those who know where to invest to get the best returns when markets do recover. And they will.

When did any investment adviser ever say that by investing in stock markets you would get rich overnight? I use the examples of an engagement ring, a property and starting a new business to explain my thoughts. If you sell your ring a day after it was given to you, are you likely to get the price on the valuation certificate? If you try to sell a house immediately after buying it (taking into consideration agents fees, transfer fees etc), do you think you would make a profit? Highly unlikely.

And what about beginning a new business? After securing premises, furniture, equipment, stock etc, do you think you would make a profit, or even recover your costs, at once? Also highly unlikely! Well the industries I have used as examples here are the type of listed companies on stock exchanges.

Why then would you expect to make a profit on the market in such a short time span? These are all long-term investments.

Market timing is a mug's game. Few if any get it right more than once, and even then it has more to do with luck than anything else. The real concern is that investors are often driven by bold newspaper headlines and financial commentators' views about the present.

They forget that questions put to these individuals usually require answers that relate to their short-term views. Although these are all-important questions, they are in reality of little relevance to long-term investors.

A long-term investor looking for growth should realise that coupled to this is their time in the market which in my opinion should be upwards of seven years. It is only over a period as long as this that the sharp fluctuations that can and will take place will be ironed out.

This is not the time to panic or to sell quality equities. The real art of investing is to identify value well before other investors, and then to be patient, patient, patient. This is turn will bring rewards over the long term.

Source: Business Day

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