Chosen Thought

Archive for January, 2009

With a family to support he spent many hours researching other sectors, industries, products and services to see how they could use their current infrastructure and adapt it to generate income from a new sector. After 10 years recruiting in the IT industry he decided to introduce a consumer cleaning arm to the business and a wedding services firm hiring wedding chair covers .By targeting the upper class consumer and implementing correct marketing strategies, they were able to create strong brand awareness in these demographics.

As the economy slowed and consumers pulled back, a small {business
|company|partnership|firm} in the child clothing retail sector decided the time was right to invest and start a new business. This company owner I also met last week at the same presentation.

She explained to me that with the new design clothing sold at discount prices within supermarkets and the increase of the internet, her customer base began to dwindle before the credit crunch started. Borrowing off her credit cards and utilising her company overdraft, she set up an online Nanny Agency recruiting experienced nannies across London. Investing £10,000 to build a customer website, off the shelf database and stationery, she then began to ask herself if this was the right thing to do.

After this she reached out to her potential clients, telling them about the services on offer and offering discounts to promote sales. From her knowledge and experience in marketing, she employed a leaflet distribution company to target the wealthy demographics in London. Advertising in local directories worked well, whilst all this was happening her domain name was becoming more and more popular. The organic google listing began to rise through the rankings, thus making more sales leads.

From speaking to these 2 entrepreneurs, it is quite clear that if they held back and wasn’t brave, they could have lost everything. I guess borrowing money and growing your debt can be very daunting, however the power of the internet makes researching a {business
|company|partnership|firm} idea easier.

Since 2004 our market has given investors a rollercoaster ride. From 2004 to 2007 it rose 50% on the back of the global economic boom. Then, from October 2007 to March 2009, as the recession and global financial crisis started to bite, it fell by an unnerving 40%. But it has staged a remarkable 24% recovery since March.

Before we get too excited, we should acknowledge that even though it has bounced beautifully over recent months, the market is still 27% below its 2007 peak. It needs to gain a further 38% to regain this 2007 high point.

Therein lies a very important lesson for investors of shares. Notice that the 40% decline requires a recovery of over 60% to get the market back to square. Such is the brutality of maths – losses require gains of a much higher magnitude to get back to the starting line.

It is worth bearing this mathematical reality in mind as we ponder whether to buy now or not. Many people are regretting missing out on this latest rally. But the truth is that today, even after a 24% rally, people who reduced their share exposures in 2007 but also missed buying in March, are still well ahead of those who suffered the 2008 losses but stayed in the market and benefited from the recent bounce.

A conservative approach, it would seem, is still the best way to approach the market. It is far more important to be right about avoiding losses than it is to be right about picking rallies.

Frankly, I do not nor, I would humbly suggest, does any other human being, have any idea whether it will continue upwards or not from here. Markets are utterly unpredictable.

But after such a strong spike in the market, it would seem prudent to take a cautious tack. The golden rule that is better to buy when markets are low than when they are high, still applies.

I see a number of experienced investors at present, that are wary of the risk of a decline in price, but also recognise that the market could continue northwards, who are approaching the market by investing in instalments.

I believe this is a very wise approach. It takes timing right out of the equation. These people are splitting their investment capital into smaller chunks and then drip feeding this into the market. They are also choosing to buy the companies on their buy list that look the cheapest.

This is a very sensible way of mitigating the risk of buying just before a fall, while also gradually allocating capital to the market in case it continues to rise.