Bear baiting.
When prices fall and gloom and depression descends on the financial markets, the world's press and media do their best to add to the negative sentiment.Not surprisingly Investors often react emotionally to this unrelenting barrage of bad news and miserable forecasts about falling house prices,weakening economies and global warming that will leave us all in a maelstrom of irregular weather patterns and soaring temperatures.
However, recessions and bear markets are a fact of life and have always formed a part of normal equity market activity.Over the longer term such dips in value can often create good buying opportunities.Yet most investors are emotional and often have problems holding investments when fear stalks the markets. This fear can be illustrated when between 2000 and 2002 the broadly based S&P 500 index of US companies declined by 49% to a level of 776.76 on the 9th October 2000 with the fall lasting 929 days.Throughout the next two years this trend reversed and provided an exceptional buying opportunity for investors prepared to take a longer term view. By February 2008 this same index now stands at 1367.21, much higher than in October 2002, but still having fallen by around 11% since last October.Volatility is a normal and an increasing condition in stockmarkets and whenever we experience a severe market correction, good companies are marked down in price alongside poorly performing competitors.This creates significant new investment opportunities to build new equity portfolios or rebalance existing holdings by cutting out the deadwood to accommodate exciting new prospects for your investment portfolios.
Not everyone makes full use of these opportunities and it makes sense not to invest funds that you cannot afford to lose.However, history records that Nathan Meyer Rothschild, who settled in Manchester in 1798 and conducted business as a textile merchant of Manchester, then later moved to London, invested in the London stockmarket buying stocks just when most other investors were panicking and selling their holdings, as they believed that Napoleon had won the battle of Waterloo.The eventual truth of Wellington's victory resulted in a surge in stock and share prices making Nathan Rothschild a fortune.Perhaps there will be future investment opportunities wherein we can all do the same.
Stephen Hill