Saturday 22 July 2017

Have no fear

Despite international market turmoil, now is a good time to think about investing in shares, writes Ciaran Brennan

SHREWD INVESTOR: Carmel Gillen, who buys shares when stock markets are down and sells when markets are up
SHREWD INVESTOR: Carmel Gillen, who buys shares when stock markets are down and sells when markets are up

Ciaran Brennan

Such has been the turmoil on the international stock markets in recent times that it is beginning to feel like you're watching the Disney cartoon 'Chicken Little'.

Any minute you're expecting somebody to go running around with their hands on their head shouting, "Run for your lives, the sky is falling".

While the reality is that many shares have bombed and many stockmarkets have been experiencing the worst run in years, the question remains: Should you run with the Chicken Littles or is it time to run in the opposite direction?

The problem with stock markets is they are like rollercoasters -- there are ups and downs but the bottom is hard to call.

"The stock market is impossible to time in the short term," advises personal finance expert Brendan Burgess.

"If you buy shares today, they could well be 20pc lower in a month's time or 20pc higher in a month's time. Over the longer term they rise. There aren't many periods where if you buy shares you would have lost money over a five-year period. It does happen, but it is very rare."

The best strategy is to buy a diversified portfolio of shares and hold them for the long term, according to Mr Burgess.

Owen O'Malley, chief executive of the The Investment Club Network (TICN), describes the recent sell-off of shares as "a fascinating study of psychology".

Greed

He adds: "Around 12 years ago, when I went to study with the top investors in the world, there was a famous guy there called Peter Lynch, head of the famous Fidelity Fund, and he said to succeed in the stock market you've got to do the opposite to the masses. The masses are driven by two human emotions, fear and greed."

Mr O'Malley's business, TICN, provides education, coaching and support to help people to understand the world of investment -- shares, options, securities and equities.

He advises anybody investing in shares to avoid the herd mentality and adopt a contrarian approach, quoting the king of the stock market, Warren Buffet.

"When all feel fear, you should feel confident, and when all feel confident, you should feel fear," he says.

According to one Irish broker, who declined to be named, deposits in banks are on the increase at the moment as people decide to sit on their hands and do nothing.

However, he says this can often be the best time to start looking at shares.

"The best time is proven to have been the point when fear was at the highest.

"Historically, if you look back, the early 1990s was a great time to buy stocks, 2002 was a pretty good time -- it wasn't quite near the bottom but it was a pretty good time to buy stocks. The great crash in 1987 was a great opportunity to buy. Markets typically overdo these things."

But investors shouldn't rush blindly into buying shares, says Mr O'Malley.

"Around 97pc of the people who invest in the stock market do zero research," he says.

"They are just driven by news and world events. They have absolutely no ideas about the fundamentals of the company, whether it is good value for money, whether it is close to book value, all the stuff we teach in TICN."

Mr O'Malley says his organisation has broken down the fundamentals of investing into four key steps.

"The first is that the company is fundamentally sound -- it is a rock solid quarterly company, it is selling products and there is profit in the product they are selling -- with preferably little or no debt and close to book value," he says.

Secondly, investors should look at the trends, because every share goes through that 52-week high and 52-week low, he says.

"We say, let the trend be your friend, know exactly what the direction of the share is and don't be swimming against the current," says O'Malley.

"Thirdly, there is always a bit of rent to be collected every single month if you own shares in the US market. With trade options you can effectively set an option against your share, again regardless of the direction of your shares. Even if your shares are falling, you can generate some form of income."

However, Mr O'Malley also says that investors must always have some protection in place for their investments.

"You must know why you're buying it, what you want, when you're getting out and you must also have a plan B if it goes in the opposite direction to what you thought."

Mastering the market through education

DONEGAL woman Carmel Gillen only began trading in shares through The Investment Club Network (TICN) last June.

"In the year previously, if somebody had said to me I'd be buying and selling shares, I would have thought they were mad," she says.

Some would say you would have to be mad to trade in markets that have shown immense volatility but the turmoil in global stock markets has not scared her off. In fact, the opposite has been the case.

"It is all opportunities. When the stock market is down, that is the time to purchase and when the stock market is up, that's the time to sell. Always do the opposite to what the stock market is doing."

Education and controlling emotions are the keys to successful stock trading, she says.

"If you can master your emotions, you can master the stock market," she says.

"It's all about education and the TICN really educates you well."

She has also been quite careful about the shares she buys. "In TICN, we never touched the Irish market at all, just the US market. There are more opportunities. There are over 30,000 companies in the US."

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