Buying time
Caution is advised before putting any money into stocks right now, but Charlie Weston says savvy investors are piling into the volatile market

Tuesday September 4th 2007
By Charlie Weston

On the face of it, investors should keep their cash and steer clear of the stock markets. The ISEQ index of shares on the Irish Stock Exchange, for example, is down 14pc this year so far.

Pension funds have suffered, while a credit crunch is causing consternation in markets all over the world.

Put any spare money into one of those regular savings accounts that are paying 7pc or more instead.

However, some savvy investors have been reported to be piling into the markets, convinced that the recent turmoil will work itself out and they will have bought cheaply.

In Britain, there has been a surge in the numbers of wealthy company executives taking out jumbo loans to invest in markets.

Stateside, company bosses have been buying shares in their own companies at a rate not seen since 1995.

And wealth management firms in Dublin report that some of their high-net-worth clients see good value at the moment. These people are not put off by stock market turbulence, having seen it before.

Other financial advisers, though, advise caution. Trying to predict short-term movements in markets is a mug's game, they caution. Only invest for the long term, with an investment period of at least five years best policy.

Director with the wealth management division of NCB Stockbrokers Bobby Hassett reports a number of wealthy clients spending between €100,000 and €300,000 at the moment on shares.

Typically, these people have a net worth of between €3m and €10m, having sold a business or made money from property investments.

"Guys who have been around a long time and seen the ups and down are certainly not being scared off. Some of them look at this [market turmoil] as an opportunity."

Rich investors are currently attracted to the likes of CRH, because of its exposure to spending on infrastructure in the US, and AIB because of its high dividend yield.

And Veronica Gray of Dublin-based wealth management firm Acumen & Trust said some wealthy investors were putting lump sums into investment funds at the moment, as market upheaval has meant prices are low.

Ms Gray said: "While quick money can be made and lost in times of volatility, the majority of share price increases are spaced over longer periods.

"I think that experienced investors who are investing for the long-term recognise this and some will view the current situation as a buying opportunity."

She added that over the past 20 years, stock markets have been subjected to a number of crises, but the markets have always recovered.

The table contained in the illustration on this page shows the maximum fall in the Dow Jones Industrial Average in periods of uncertainty, and shows how long it took the index to recover to its pre-crisis high.

Ms Gray said: "A note of caution needs to be exercised -- during periods of major instability, the markets can remain depressed for long periods."

She warned that markets could fall further, but said that if the current volatility just proves to be a short term, then markets will recover.

"Timing the market is notoriously difficult. However, one thing is certain, prices are cheaper than they were a few months ago.

"If you can commit to investing for the long term and accept the risks, the history of the past 20 years suggest profits can be made."

It might be wise to stagger any investments at the moment to protect against any further short-term falls.

Caution is a sentiment advocated by fee-based authorised adviser Eamon Porter of Aspire Wealth Management in Malahide, Co Dublin.

He advises people to be wary of stockbrokers and wealth management firms talking up buying opportunities in a bid to increase transactions as a way to generate commissions.

Asked if it was a good time to invest in equities, he said: "Be sure to take a long-term view. If you are trying for a quick buck, be aware that you can't be sure of it in the short term."

Previous Stock Market Crashes

Crisis	Fall	Recovery Period
October Crash - 1987	36%	9 Months
Russian Debt Crisis - 1998	14%	3 Months
Gulf War - 2000	14%	4 Months
9/11 - 2001	21%	5 Months
Technology Bubble - 2002	27%	15 Months

(Table provided by Acumen & Trust)