Thursday 21 November 2019

It has a bad rap, but investing – wisely – still makes sense

Over the past few awful years of recession, decline and loss of confidence, it is an understatement to say that the image of investment has been badly tarnished.

The concept of investment as a way to preserve wealth has taken a terrible beating .

There is a vague idea, widely held, that somehow investing is a device constructed by some obscenely well-paid wide boys with red braces whose objective is to make themselves richer and us poorer.

This may appear a slight exaggeration, but we cannot say it did not happen. What we do know is that we are living with the consequences each day, and the pain in this week's Budget will only underscore the misery of being the victims of the pernicious financial world.

However, the concept of securing and preserving wealth for income and retirement has been around for a long time and, in my opinion, will continue, despite the interruption caused by the greed, recklessness and madness of the Celtic Tiger.

It is essential to stress the importance of the investment sector for hundreds of thousands of people in this country who have pensions, insurance policies and personal savings. Their needs are locked into a system that demands the safety and security of wise investments, plus effective regulation (say no more).

At this point, some readers will be thinking to themselves, "Hold it! Give me a break! We believed that sort of guff five years ago and look what happened. Our nest eggs disappeared, never to appear again in our, or even our children's lifetime. Blood boiling comes to mind."

This is understandable, but I am still of the opinion that the system of savings to secure a future remains a priority for everyone, and a sound investment sector is the sine qua non for such a regime.

The problem is, will we ever get back to investment normality and avoid the mistakes made in 2008? Confidence is fragile and could take some time to rebuild. Being an optimist , and presuming that normality returns, I've invented a little acronym to help keep investment priorities on the straight and narrow. I believe any serious investor these days should be ARREST-ed.

A is for activity. If investment is going to be your game, be serious about it . Study the market. Read the business papers. Buy the business magazines. In essence, do your homework. And get yourself an adviser. My adviser is Lady C. She provides a sounding board for some of the madcap ideas I can come up with. So a good, trustworthy guide for your investment decisions is no bad thing .

R is my abbreviation for rumour. Never be tempted by a rumour. You simply never know where it came from. I'd be embarrassed to list the mistakes I have made investing on rumours and inadequate research: African Gold (now Mwana Africa) comes to mind.

The next R is risk .Remember Mrs Beaton's saying, "If you want hare soup, first catch the hare". Well, in investment terms my motto is, "if you want to invest, first have the money". It may be my rule , but I know that this rule does not apply to the more risk-seeking investor. Also, watch that all your investment is not in one share or one currency or one sector.

E stands for economic environment. It is fairly obvious that only an irredeemable investment masochist would have put money into a company depending on the Irish building sector over the past few years. But there are good companies in poor economies – Repsol and Inditex (Zara) in Spain, Galp in Portugal, Luxottica in Italy, to name but a few.

S is my abbreviation for sectors. It's often useful to have a working knowledge of the sectors in which you choose to invest. Remember the dot com bubble. There are a lot of sectors to choose from, like industrial, consumer goods, mining, real estate, transport, and many others.

T is, of course, for timing. It cannot be taught, and experience is the only guide. But if you get your investment timing right, you're sucking diesel.

Dr John Lynch is a former chairman of CIE

Irish Independent

Also in Business