Black Monday – ‘Keep calm and carry on’
Despite the ‘Black Monday’ events sending global markets into freefall, I would urge investors to stay cautious and consistent.
Following the major slide in Asian stock markets and the subsequent decline of the rest of the world’s markets, investors must ensure their portfolios are sufficiently diversified geographically, by industrial sector and asset class in order to manage risk as well as increasing market volatility.
It is my view, as I was quoted as saying in yesterday’s International Business Times, that most long-term investors should not look on Black Monday as a cue to panic sell or buy up any huge amounts of all the available bargains. Instead, they should ‘keep calm and carry on’.
Attempting to decipher stock markets in the near future is a near impossible task – and it is far too soon to determine whether the current sell-off is about to bottom out.
However over long periods of time, stock markets can be largely predictable – and they tend to rise over a number of years. This is what market history teaches us. Therefore, to my mind a wise strategy for investors is dollar cost averaging.
Investors should ask themselves ‘will stock markets be higher than this when I retire’? Looking at the history books the most likely answer to this question is ‘yes’, if they have at least 10 years ahead of them. So, as a result, investors should typically continuing buying as markets fall in a systematic way.
Buying low and selling high is often said to be the way to secure investment success, but attempting to locate the exact time of the weakest point in the cycle can’t be done. Consequently, by maintaining a well-diversified portfolio and adopting a measured way to make the most of the long-term trend of stock markets and deliver long-term capital growth is far preferable to panic-selling during a crash, which can be potentially devastating for investors.