‘But is this a good time for a novice to invest in the market’ asked a friend on Facebook. A brilliant question. Here are 7 reasons why the answer is yes, and remember, I am not trying to sell you a fund, so am not biased.
Reason 1: Even experts don’t know the best time to invest. Trying to pick the best time to invest is seductive but notoriously difficult. Want to know how bad experts are? Just look at their returns on any league table. They often don’t beat bank accounts. Sometimes they don’t beat the mattress. That means a novice can rely on themselves without too much of a disadvantage.
Reason 2: You don’t have to buy rubbish: Yes at the time of writing in the last 6 months, Netflix and Research in Motion (Blackberry), Bank of America, are down over 50%. And these are big brands. But that is the point. We can be very selective, choose carefully and buy and hold. Of course someone has to teach us how to do that. But the point is, just because you hear of stock crashes, does not mean you ever needed to have bought them. With some careful stock picking you could have avoided the stinkers. Still worried? Try an index tracker – see below.
Reason 3: All stocks don’t drop in bad markets: Sure for a while when markets plummet everything stinks. But cream rises over time. We have to ensure we are looking at cream. To do this we use some time criteria. That way we sleep like babies in the difficult times knowing we own quality. Now wouldn’t that be exciting?
Reason 4: It is easier than ever for a novice to toe-dip: With the internet, brokerage costs are so low, that even if you start with as little as 500 euros, dollars, pounds – it does not eat too large into your investment. So you can start small. What’s the rush? No one is switching off the market. But this is an important point. Private investors lose money when they are in a rush to make a lot.
Reason 5: Searching for good stocks using simple criteria is easier than ever: You want a large company that is growing its sales every year for the past three years and its valuation is one of the lowest of all companies on the stock market and it pays dividends at a rate beating bank accounts. That is just an example. It used to take hours to get this kind of data. Now you can do it in seconds. For instance see www.sharescope.co.uk/alpesh or http://www.google.com/finance/stockscreener
Reason 6: When is a good time? Surely you don’t think a good time is when a market has just rallied? Then people would argue, ‘is this a good time?’ or what about after it has rallied and rallied and is ready to burst. That is when everyone gets in. That is a called a top. So what are you left with. Logically, you say when it is falling. Or as Warren Buffett put it, buy when others are afraid and sell when they are greedy. Well people are definitely afraid now.
Reason 7: Products mean instant simple diversification: Products such as exchange traded funds, which track indices, mean you can follow 500 stocks by owning just one. These are relatively cheap to buy and own.
So there you have it.