“Should investors fear the Bear?”

21st January 2016

With the FTSE 100 officially moving into ‘bear’ territory yesterday, Richard Stone, chief executive of broker The Share Centre, comments on what this means for investors…

The recent move of the FTSE 100 into a formal bear market is clearly unwelcome for investors as is the continuing market volatility and global political and economic uncertainty.

Concerns, particularly regarding China and how authorities may respond to the slowing economy, are weighing heavily on markets.

The falls in commodity prices and their impact on commodity firms, many of which are in the FTSE 100, may result in dividend cuts so investors searching for yield (dividend income) should be particularly careful when picking their investments as indicative or past dividends may prove illusionary.

However, when encountering a bear the well-known advice is ‘do not run’. Whilst concerns will persist for some time yet, I believe the same applies for investors when faced with a bear market.

For personal investors, bear markets (just like bears) can be frightening. However, they are only an issue if you have to realise your investments at the bottom of that bear market – if you can take a longer term view bear markets can provide buying opportunities.

History would suggest the recovery after the bear market will be substantially longer than the downturn and will deliver returns in excess of the paper losses. This, of course, has to be caveated with the usual financial warning that past performance cannot be a reliable guide to future performance.

The Share Centre has seen personal investors undertaking more buying activity than selling activity over recent weeks: in terms of the number of trades made by our customers since the turn of the year, 59% have been ‘buys’, compared to 41% selling.

This suggests that personal investors are seeing buying opportunities in the recent falls.

If investors can hold their nerve and take a long-term view then history at least suggests that after the storm the sun will shine again.

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