Is now a good time to buy stocks and shares due to the way the market is?

cheerfulcat

And yet in the penultimate paragraph he says

The decline in importance of shares' investment in relative terms should not obscure the fact that, over long periods, equity returns are superior to those produced by gilts and short-term government bonds (about 4 per cent to the good), as the Barclays Capital graph shows. Neither should we ignore the superior returns on offer from fund managers with a gift for stock picking or strategies.

TBH I have doubts about the impartiality of the reporter - though there are many, many mentions of pension funds there is not a single reference to Gordon Brown's raid on them!

runciblespoon

Yup, right underneath that article in the paper was this one on the importance of managers. (If only picking the good ones was that easy...)

The article's just confusing though - it tells us equity has fallen out of favour over the last 10-20 years (is there data to back that up?) and then says it's much better than gilts. :rolleyes: Is there some missing asset class to compare it to? Or has the situation really changed in the last 10-20 years?

LongTermLurker

runciblespoon wrote: »

Stock-market historian David Schwartz says : 'It is one of the biggest myths that shares offer generous returns provided your time horizon is a long one.If you look at average annual returns from 1900, stocks come in at about 1 per cent; it is only if you re-invest dividend income that the figure rises to 4 or 5 per cent.'

And, uh, if I put my money in the building society and spend the interest will I be surprised if I have no return? Surely the point of the investment is both the income and the capital gain? How else would I get hold of the dividend income without owning the shares?

Are people still investing in shares, but abroad rather than in UK equity? And pension funds are moving away from equity as they have larger percentages of retired or near-retired people?

Or is there really a disturbance from the hundred-year equities-beat-gilts-over-long-term model?

That (quote) is the craziest statement I've ever read. Personally, I'm not investing at the moment because I want to stay very liquid for the time being; that isn't to say I wouldn't be investing under different personal circumstances. I believe that drip-feeding money into a range of UK and international Income and Growth funds, with a bit of a gamble on high yielding bonds, would be worthwhile in the long term - then again, I don't proclaim to be any kind of an expert. I think everyone should increase their liquidity though to a degree, if only to put them in a good buying opportunity when it arises.

cheerfulcat

runciblespoon wrote: »

Yup, right underneath that article in the paper was this one on the importance of managers. (If only picking the good ones was that easy...)

The article's just confusing though - it tells us equity has fallen out of favour over the last 10-20 years (is there data to back that up?) and then says it's much better than gilts. :rolleyes: Is there some missing asset class to compare it to? Or has the situation really changed in the last 10-20 years?

Just some missing logic, I think!

I suspect that all that's changed is the direction of the markets. It's wonderful how the media come over all bearish once they spot the trend.

As to David Schwartz - he is described as a stock market historian, which sounds very grand and knowledgeable, but it would seem that he is in fact a statistician ( this is how the BBC reported it, anyway ). Interesting to note, from the article I've linked, that

Most of his cash is tied up in gilts and guaranteed interest accounts, leaving only some free for share investment.
He also spread bets, and the likes of IG Index willingly accept his punts.

And from an article he wrote for FT.com

Fresh corporate news often helps me to turn a profit. But the secret behind these profits is in the way I use the latest announcement.
I purchased shares in Optos last Tuesday. This is a small medical technology company specialising in retinal imaging devices. An earnings update was due the following day. My purchase was a bet that the update would be positive.
[...]
The price trend for this tiddler is very volatile, a short-term trader’s dream. A few small trades often shift prices by a healthy margin.

He also ignores inflation and dividends when calculating long-term returns.

On the whole, he seems to be a trader, not an investor. Good luck to him if he can make money that way but I think it would be unfortunate if he deterred people from long-term investing - as you say, where's the missing asset class?

Dreamybee,

I was just wondering - due to the credit crunch - inflation - recession and everything else that is going on - do you think that now is the best time to buy stocks and shares with my bank as I can buy shares at a lower price - as hopefully when things are back on track the price of my shares will increase???

No-one can know the best time to buy, but this period could turn out to have been a very good time to buy - that's something which will only be known in hindsight. I think that JayZed has summed it up pretty well.

gfplux

I am staying liquid for the moment.
I am a cautious investor.

purch

That (quote) is the craziest statement I've ever read

then again, I don't proclaim to be any kind of an expert

The idea of gaining long term growth from Equity Investing is a relatively recent fad, and like all fads it could easily end.

The long term return from Equity's with dividends re-invested is somewhere around 7% over the last 50 years or so.

If you bought Gilts at current levels and compounded the semi-annual coupon you would easily get a return close to that long term trend.

The 'cult' of Equity has been great for the Industry over the last 20-25 years. Investment Banks such as Goldman Sachs et all have grown from relative obscurity into the huge players of today.....the huge players in fact who have come close to bringing the whole financial system down.

Sensible investing in Equity's as part of a balanced portfolio will always have a part to play in any strategy, but expecting a long term return in double figures is probably unsustainable.

LongTermLurker

Purch, just to clear up any confusion, those quotes of mine were regarding the statement that equities only made money when dividends were re-invested; I wasn't suggesting that the idea of equities not being a one way bet was crazy.

The analogy I would put on that is "if I put cash in a bank account, I wouldn't be surprised if my account didn't increase in value if I spent all the interest". The thought that someone would count investments as bad, on the premise that you had to re-invest the income, is crazy to my mind.

I'm definitely no expert - just a keen learner when I'm not being kept busy at work

Sensible investing in Equity's as part of a balanced portfolio will always have a part to play in any strategy, but expecting a long term return in double figures is probably unsustainable.

That's my way of thinking also, so maybe I'm on the right track :rolleyes: