You know, I think I’ve cracked this investment thing.
Perhaps the most powerful force in investing is momentum. Bull markets build slowly. Initially, only contrarians are buying. Everyone else thinks that shares are for the birds.
Then, gradually, the bright people realise that you can make a profit from equities. So the smart money starts to buy in. But most people still ignore shares.
Finally, the momentum reaches a crescendo. Investors are making fortunes from shares. And now everyone, from your dentist to the shoeshine boy, is buying in.
You may not realise, but bear markets also have momentum. After the euphoria of the bull market, you have the first crash. Some people start to have second thoughts. But most punters remain invested.
Then you have the second crash. This time, more are put off, and the smart money sells out. But many still cling on.
Then there is the final crash. The bearish sentiment reaches a crescendo. Instead of euphoria, you have depression, apathy and malaise. Every single person has now thrown in the towel, except for a few hardened contrarians.
We all made the same mistake
This is the bear market/bull market cycle of investing. In simple terms, investing is difficult in bear markets, and easy in bull markets.
So what do you do? Well, it’s easy, isn’t it? You avoid investing completely in bear markets, and you invest heavily in bull markets. That’s how you make money from shares.
Except, of course, it isn’t that easy. As a small investor, I made the classic mistake of investing too early, when we were still mid-way through the bear market. Consequently, I have lost a lot of money over the past seven years or so. I think many other investors will be in the same boat.
Depression, apathy and malaise is at its peak. Investors around the world are throwing in the towel. Global stock markets, including the FTSE 100, are crashing. So you’ve lost money as well? We’ve all made the same mistake; we’ve invested too early.
Be the one that listened
But just look at some of the share prices floating amidst the debris. Barclays is selling for 244p. Globo stands at just 37p. Fidelity China has fallen to 112p. Wherever you look, there are bargains.
Everyone has given up. They think shares are for the birds. Only a few contrarians are buying. You should be one of these contrarians. I know I will be.
So what should you be buying? Well, my view is that you should invest where the growth is. That means choosing a few of the strongest FTSE 100 companies, buying small caps which show the most promise, and investing a substantial amount in fast-growing emerging markets such as India and China.
I am planning to invest a large amount of money over the next year or so. I would recommend that you do the same.
Remember the ‘cry wolf’ story? It only rings too true. Be the one that listened.