Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
Another weekend, another picture in the financial press of an investor losing money in unit trusts and determined to hang on for the recovery. More soothing words from financial advisers suggesting "this is not the time to sell".
Every bear market tells the same old story. Since many financial advisers get the market wrong, the average investor stands no chance. By a perverse logic, those who most need the best advice - to stand aside at a market top - actually get the worst advice, dressed up in performance figures and mistaken concepts.
One of the worst concepts is that equities always go up. It is based on a misunderstanding of the nature of the great post-1945 inflation, coupled with an inability to realise that deflation now drives the global economy, not inflation. Yet it is paraded as the "right" answer all too frequently.
Sadly, the average investor has to make his or her own mind up that a bear market is under way, by seeing even bigger losses, then waiting for an elusive rally to get out. There is an old saying: "the first loss you take is the easiest". Not many years ago, there were jokes around about making a small fortune by starting with a large one. Now, everybody is in that same boat.
Contrarians understand that you sell when financial advisers are unanimous in their buy recommendations, the public are stampeding to buy, and all reason has departed in a speculative orgy. The ideal time to buy, of course, is when you read that you should never invest in something .. it is the worst thing you can do. There will be lots of false calls of market bottoms as the years go by. We reckon it will take at least ten, perhaps fifteen years, to sweep away the false concept that equities always go up. That is the time you will have to wait before buying. For an example, see Contrary View 10, Gilts are great.
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