The heat of the moment

By Alexander Davies | 13 Oct, 2008 

Undoubtedly we are in uncertain times and stock markets hate uncertainty. At times like this the market tends to react strongly (or even overreact) to news, and we have seen huge swings in the markets on almost a daily basis.

It is easy to get caught up in the heat of the moment. Now is probably not the time to make a knee-jerk reaction and sell the holdings in your portfolio. Rather than be panicked out of the market in the short term, investors could benefit from considering the long term opportunities this situation presents. With some shares on historically low valuations and an average yield on the FTSE All Share Index of about 5% some interesting investment opportunities are starting to present themselves.

Some investors will inevitably be waiting for the market to reach the bottom before investing, but unforeseen events make timing this perfectly almost impossible. The bottom of the market can only be identified weeks, or even months, after it has happened. It may be better to accept there is likely to be further volatility in the short term, and share prices could fall further, but if you take a long term view some investments currently look exceptional value.

Historically when markets recover after significant falls much of the gains have come in the initial period of the recovery. If you wait too long for markets to settle you could miss much of the subsequent rise.