October’s reputation for giving stock markets a rocky ride has, superficially, been vindicated this year. While the latest gyrations have given short term speculators plenty of scope for wheeling and dealing, the message for most private investors is to think long term.
Appearances can be deceptive, though, and once again we needed to take stock market “wisdom” with a pinch of salt. Those who say that October is a bad month for shares have been encouraged in that belief by headlines suggesting that history was being repeated.
In fact, September, a month when shares are supposedly boosted by buyers piling back after selling out in May, was the real nasty month. After unsuccessfully challenging the FTSE 100 record high at the end of August, the index fell pretty well all the way.
October, in contrast, has been a month of two halves: the first 15 days saw a continuation of September’s trend and we started talking about whether we would be below 6,000 points before November dawned. People like me who said a year ago that the Footsie would top 7,000 points in 2014 were starting to look pretty stupid.
A second half of recovery has certainly calmed a few nerves even though it has not brought us back all the way to August’s highs. But ask yourself: Would you, as a short term trader, have bought in the middle of October when the decline in shares looked likely to continue into an abyss?
Short term trading involves going against the trend and being willing and able to stand occasional hefty losses in the hope that you win more often than you lose.
In contrast, private investors like myself who have chosen to ride out the vagaries of the market are pretty much back where we were six months ago and we have collected a pile of dividends in the meantime.
We are running out of trading days for 2014 but momentum is with the market. The wildest forecasts of 7,800 for the Footsie are not going to be met and even my own choice last January of 7,300 is too optimistic but a new record should not be written off yet.
A Bash at the Banks
All the bank bashing, by customers, regulators and shareholders over the past five years seems to be losing its effect.
European regulators have published their stress tests designed to see who in the industry can withstand the next financial disaster and several across various countries have failed to come up to scratch. All British banks passed, though Lloyds in particular without flying colours, and the Bank of England is imposing even sterner restrictions.
National Australia Bank has had enough and wants to sell Clydesdale Bank and Yorkshire Bank because it deems them to be low-returning assets.
Barclays (BARC) this week produced a trading statement that was quite downbeat, albeit with higher profits. Yet more fines loom, this time over currency rigging, and another £500 million has been set aside. Each time we seem to be coming to the end of the list of misdemeanours another one crops up.
Royal Bank of Scotland (RBS) has set aside £400 million to cover any currency misdemeanours but it, too, is building profits. As at Barclays, the latest figures were greeted with a rise in the share price.
I wouldn’t chase Barclays shares any higher at this stage but RBS looks intriguing. It is in a minority of companies whose shares have risen strongly since the beginning of May so some of the recovery is already in the share price. We could be seeing a repeat of what happened at Lloyds (LLOY), where shares tripled in value despite the absence of a dividend and despite a large Government-owned batch of shares due to be dumped on the market.
RBS was much more of a basket case but the belated swing back into profitability is complete. If you held on through thick and mainly thin, you don’t want to be giving up now.
