Sunday, 29 March 2009

The worm that turned

I have never been a fan of the equity market.

A share is not a particularly strong investment to take - you get paid out last if there's a big problem at a company, and you don't really have any control of any company - and during the credit boom, share prices just looked wrong.

I sold out of my last share holdings in November 2007 when I grasped the full scale of the credit crunch. It took a while for the equity markets to catch up and collapse, but eventually they did.

Now, however, I am interested in shares again. For many of the reasons listed here, which suggests that there opportunities in the gloom, and there are likely to be some big movements in share prices, even during the economic slowdown.

However, I do not agree that investing in an index tracker - one that follows the entire market - is a good idea. Because there are still many reasons why some companies' share prices will fall, a lot, over the next year. The stock market, as a whole, is very unlikely to rise - it is as likely to fall.

But some shares will do well. I am looking for companies with strong balance sheets, strong cash positions, in good sectors and management, with limited amounts of debt. And the final thing, is that the rest of the market has not found them yet, and the share prices are low.

A counter example: Sainsbury's. I like Sainsbury's. It is a good company that I know well, but not only do I know this, but so does the rest of the market. When it released strong figures a week or so ago, it's shares went down. It is not a good high growth stock ... but it is one to have and to hold for a while.

So the shares I am looking for are good companies in unfashionable sectors, like hedge funds, retailers and banks.

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