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Wednesday, September 2, 1998 Published at 08:50 GMT 09:50 UK

Business: Your Money

Market turmoil: Buy, sell or panic?

Buying opportunity or last-chance saloon?

As the world's stock markets tumble, many private investors are watching the value of their shares or share investment trusts fall, in some cases sharply. Now they have to consider a number of possibilities: sell, sit tight, just panic, or even buy.

The experts are all broadly in agreement in their advice: Above all, don't panic. Think long term and and take a lesson from history. In the end most will be better off sitting tight.

After years of "bull market" conditions with consistently rising share prices, some of the largest falls since the 'Crash of 1987' will come as a shock to many investors.

The volatility of the stockmarkets, with swings of more than 100 points up and down several times during one trading session, will have frightened investors. As most of them do not have access to up-to-date market figures, it has become increasingly difficult for them to manage their portfolio by riding the market.

Falls in perspective

Justin Urquhart-Stewart, business planning director at Barclays Stockbroking, advises taking a step back and putting the current upheaval into a historical perspective.

"It looks very frightening at the moment but the Footsie (London's leading stock index) is still well ahead of where it was last year.

[ image: The sharemarket will always have bad days]
The sharemarket will always have bad days
"From 1995 there have been significant drops almost every year until now. Dropping 150 points looks very large but when the Footsie is at 5500, 150 points is not proportionally that large and this shock is no greater than what we've seen over the last few years," cautions Mr Urquhart-Stewart.

Even after the biggest crash in history in 1987, most stock markets had eclipsed their pre-crash highs within a couple of years.

"But we are certainly heading into an economic slowdown and there are some defensive strategies investors should think about," he warns.

Stick with quality

"So long as you are in quality stocks, stick with them. That means blue chip, FTSE-100 companies and those from the FTSE-250 that are well-traded and well-known. In times of nervousness they are the first to recover."

Reduce holdings

Investors with a high exposure to shares should think about selling some, taking the gains from the past couple of years and moving into bonds - treasury bonds or gilts, and company bonds are the best fixed-interest offerings, Mr Urquhart-Stewart says.

Necessity industries

In times of economic recession, shrewd investors look for the companies that deal in the necessities of life. No matter how bad things get, people still have to live: eat, cook, move around and stay warm.

Rail firms, supermarkets, oil and utility companies should fare better on the whole than other companies, says Mr Urquhart-Stewart.

[ image: Most investors should sit tight]
Most investors should sit tight
Add to those banking and finance stocks as well as manufacturers where lower share prices may bring a new rash of mergers and takeovers.

A survey of fund managers - who make their living buying and selling shares for investment trusts - by Bates Investment Services showed they thought share selection would take on extra importance in the coming months. Financial and consumer good stocks are their most favoured.

New investors

Many newer investors to the market will have entered with the rash of privatisations and the conversion of building societies to listed companies in recent years.

These are the investors, many inexperienced in the share market, who may be getting nervous, according to Harry Katz, principal at investment advisers Norwest Consultants.

He reminds investors that "these shares have done very well and should continue to do so."

So what is the short-term outlook for the share market?

Fund managers in the Bates survey predicted there would be little growth in share prices for the rest of this year. However, they said that the market should rise in the first quarter of next year when interest rates are expected to fall.

The general view is there would not be a prolonged 'bear market' of falling share prices.

Investment funds

Many UK investors will have invested in shares and share-based investment trusts, or unit trusts via Peps or personal pensions - a nest egg for later in life.

For those building up a share portfolio to fund their retirement, falls of 5% are not going to affect the final outcome by very much.

Graham Bates, chairman of Bates Investment Services, said those investing in tracker funds - which try to reproduce the average growth of the share market - will be in for the scariest ride as the funds follow the market down.

[ image: US and European markets are faring best]
US and European markets are faring best
"But these investors must not panic. Like any equity investment, if history repeats itself then tracker funds will produce steady gains over the long-term."

Norwest Financial adviser Harry Katz agrees: "Investing is for the long-term - risk will always diminish over the long term. A well-diversified, well-spread portfolio is what you really want. Even for £1000 it is possible."

There is one possible exception: those investing in trusts which hoped for high growth in emerging markets like Asia, Eastern Europe or Latin America. They will be hit the hardest.

"You have to consider how long before they come back, and if they're down 50 or 60% they are not going to recover tomorrow," says Mr Katz.

He tells investors to consider three questions: "How old are you? How much of your portfolio is in shares? What did they cost you?

"If you are 25 you can afford to wait, but if you are 65 or at an age expecting to retire soon, it's a hard question. Go and see an adviser, someone who can look at things in a calm and rational way."

Investing in stocks and shares can bring rewards, but there are risks too. It should only be considered if you are ready to lose the sum invested. The BBC cannot accept responsibility for any recommendations made. Investors are recommended always to seek professional advice.

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