lifestyle

Why being boring in the stock market could pay off


Columnist Holly Mackay has two golden rules when it comes to dealing with stocks: Don’t get greedy and sit tight (Picture: Getty Images/iStockphoto)

For anyone who is long enough in the tooth to have been an investor in the crash of 2008 (or the dot-com crash of 2000 or even Black Monday back in the 80s), the past 18 months have felt uncomfortable. Unsettling. At times alarming. But not ‘unprecedented’.

Unprecedented was the word of 2020, wasn’t it? Everything was unprecedented. Trying to buy loo roll. Home schooling. Zoom birthday parties. Pinot Grigio consumption.

But as weird as 2020 and 2021 have been, from a stockmarket perspective they have not been unprecedented. Spikes and crashes are part of the journey.

On March 12, 2020, as coronavirus marched into Europe and the US, fears of a global recession reared up and the FTSE 100 suffered the second largest one-day crash in its history and the biggest since the 1987 market crash.

From January highs to the March lows, anyone with £100 in the FTSE 100 would have seen that plummet to about £65. Ouch.

However, as has always been the case, things came back. Just a week later the index had bounced by 15%. That £100 invested at the January peak would have been a slightly less painful £80. The trick was to hold your nerve, not to bottle it and not to sell at the bottom as the papers shrieked ‘Armageddon’.

Very few people buy into the market when it’s at its absolute top. Nearly anyone who invested in the FTSE 100 after March will be sitting on a profit right now. It can make a lot of sense to ‘drip-feed’ into your Isa each month, averaging out the highs and the lows.

Crypto-a-go-go

Away from mainstream markets, crypto has also been going nuts. Bitcoin’s swings make the FTSE look like a millpond. I bought a little more bitcoin in July and since then 1BTC has gone up in value from about £22,000 to £33,500.

You think that’s impressive? Ethereum is up about 300% in 2021. For me, my crypto dabbling is a small punt which started back in 2017 with £1,000 and I won’t put in much more than that. Too risky, a white-knuckle ride and I don’t fully understand the fundamentals.

Should you buy crypto? Only if you can afford to lose it, not if you’re saving for a house, not if you have credit card debt to pay off and not if you don’t have any mainstream investments as a foundation.

Be careful of FOMO. There’s always a big mouth somewhere to tell you gleefully how much they made. The people who got burned tend to lick their wounds more quietly.

And meme stocks…

Not only have investors faced huge volatility and a bonkers asset class driven largely by the tweets of Elon Musk, there have also been so-called meme stocks and even NFTs (non fungible tokens) such as digital art.

US trading app Robinhood shot to uncomfortable global attention as the broker stumbled under the weight of day trading from small retail investors like you and I.

Organised into stock market gangs on social media, savvy investors bought unloved shares and pumped the price up, hurting hedge funds who had placed massive bets on these share prices falling.

Who doesn’t love a headline about the little guys sticking it to the Wall Street W***ers?

Trouble is that when you mess with fundamentals, things shoot up on a very short-term basis and ultimately return to normal, meaning many retail investors missed the pump bit and just got the dump bit, losing money on the way.

Meme stocks go in to my ‘fun to watch from the sidelines’ category.

Lessons learned

Newcomers to investments might think the past 18 months of crypto and meme stocks have rewritten the rule book, but the bigger story of the stock market has been one of ups and downs, fads and crashes, booms and bust since the 18th century.

For every new investor reading this — some one million more in the UK than just one year ago — the past 18 months have been odd, yes. But the lessons remain the same as they have been since men in tights pranced around the Stock Exchange investing in voyages to India.

Do not buy weird stuff you don’t understand. Don’t just back one ship. Don’t get greedy and believe the hype. Learn the value of being boring. And — ultimately — keep your nerve and ride the storms.

Holly Mackay is CEO and Founder of boringmoney.co.uk, a consumer finance site offering independent ratings and best buys for Isas, pensions and other investments

If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.



How to get your Metro newspaper fix

Metro newspaper is still available for you to pick up every weekday morning or you can download our app for all your favourite news, features, puzzles… and the exclusive evening edition!

Download the Metro newspaper app for free on App Store and Google Play





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.  Learn more