Which Way Will The Market Move?

Posted on December 10, 2008
Filed Under Finance |

Some fund managers attempt to predict the movement of the stock market in order to organize their portfolios in a way that will produce higher returns. It has as well being suggested by some investment experts that investors time the market to see whether it is going to rise or fall before taking a plunge. But let’s face it; is it possible to tell whether the market is going to move up or down?

About thirty years ago, in spite of fluctuations in the stock market, it proved to deliver high returns in the long-run. A lot has happened, however, since the fatalities of September 11, 200l. Prices went downhill on the stock market. The situation was worsened by the scandals of Enron and Worldcom, which span late 2001 to early 2002. Investors lost their faith in the earnings and profits that were published in the accounts of US companies. This knocked off the confidence investors had in the US stock markets, and share prices saw a further depression. The effect was not contained in the US but trickled down to other stock markets, leading to a general fall in share prices world-wide.

Subsequent occurrences such as the prolonged and on-going war in Iraq, as well as various terrorist bomb attempts in the UK and other European countries have made the stock market even more turbulent. The cumulative impact of all these occurrences has been the creation of stock markets shrouded in a shadow of investment uncertainty.

Recent research has caused realism to hit investors really hard. It is time to accept the fact that the high returns that used to be enjoyed by investors about thirty years ago is non-existent now, and will not be produced in the future. Although an investment in shares over a long-term can still produce returns superior to safer asset classes, the returns attained will not be as high as they used to be. Let me be brutally frank with every investor; the good old days are gone and never to come back. Year 2002 saw a price fall of nearly 43% from historic highs, and there hasn’t being much improvement since.

Stock market returns have being revised downwards. One reason is that the UK is presently experiencing an era of low levels of inflation and financial regulators see it fit and realistic to keep expected returns low. The second reason is that the stock market saw high returns for 20 years or so before September 11, and there are doubts that the same momentum will be maintained.

An investment in shares has historically proven to provide higher returns than safer securities like gilts, bonds and bank deposits. Until recently, experts used to hold the notion that an investment in shares had to be sustained for at least 5 years, in order to obtain superior profits. Times have changed, and the reality is now kicking in; experts are now of the opinion that an investment in share has to be held for a minimum of 10 years to provide the same superior returns that were experienced in the past.

The truth is that it is not possible to predict how the market will behave; the dot.com bubble burst is a case in point. The reality that the stock market will produce lower returns than it used to, should be embraced and internalised by investors. Most people will not make a fortune on the market overnight. An investment in the stock market with a long-term view in mind, as well as controlling and minimising the risk involved is the best approach.

David Opoku
BA Hons. Accounting and Finance. (Currently specialising in Financial Advising/Stockbroking).

E-mail: davido312@aol.com
Web : http://www.investmentyouneed.com

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