Investors still lacking market confidence?

As we head towards 2013 with the FTSE approaching another attempt on 6000 and US politicians still talking over their fiscal cliff, it shows how much a confidence game investing and trading in shares is that a recent report suggests that investors still haven't totally bought into the recovery in markets since 2009 regardless of how strong it may look.

Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc.

The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in U.S. equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.

“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. “There’s just so much evidence of this recovery broadening.” 

http://www.bloomberg.com/news/2012-12-24/americans-miss-200-billion-abandoning-stocks.html

What applies to the US could equally apply to the UK. The FTSE may be knocking on the door of 6000, but that is still some way off the 6750 or so back in 2007 and a long way off the almost magical 7000 mark back in 1999. So, it has been a tough 12 years or so for UK shares and tougher to make money when there are so many bigger issue economic matters that always seem to put a stop on the possibility of markets going higher, they seem to be in a constant state of trying to get back to where they once were mode.

The fact is, and the internet, forum and blog comment is often a good guide to this, many people will have missed this bounce since 2009 because they probably thought worse was to come, the financial and economic world was at an end, never ending crisis to follow. Plenty of evidence shows how poor shares have been as an investment in recent times in the UK.



This negative stance may well fit the political and economic outlook of many of the new breed of "guru's" who have found a voice and audience on the web, but the idea that investing or trading in shares would never deliver decent returns again, especially after 2008, hasn't quite worked out and some have done quite well.

One investor/trader who I have mentioned before but who simply seems to make decent money year after year regardless of the political and economic situation is the Naked Trader, Robbie Burns. He has often said on his website that he knows little of economics and was a little surprised a while back to get an invitation to speak at the London School of Economics. No economics guru lecture from him on that day, this is what he said back in 2010.

Ahem, giving a talk on.. er... well... you'd think economics wouldn't you?

But in fact my talk is on... Why economics or understanding of it is no use to a trader. And why trading is more like a card game than anything to do with economics!

I never normally do talks (apart from my all day seminars).

When I got the invite from the LSE I wrote back to say I didn't give talks and in any event I didn't know anything at all about economics and the students would know a lot more about it than I did.

They wrote back to say that didn't matter. Go on say what you want, we don't mind.

Then I thought hmmm....it might be a fun and interesting thing to do. Even though it will actually cost me to do it!

Whenever I've met economists and also accountants at my seminars it's the same story.

They struggle to trade. Why? After all they know a lot about economics and accounts..

It's because first of all they are scared! Because they look at the economy or a set of accounts and look at them so in depth that something always scares them so they never place the trade.

What they don't get is that trading is like a game of cards. It's a game of poker I guess - there is bluffing, all in, the lot. Fear, greed and plenty of tension.

And of course it's very psychological and it's all about fear and emotions.

So I'll be telling them that being at economics school may not in fact be the best grounding to be a trader.

This approach has worked out quite well for him as his latest blog entry shows.

all I know is the money has flowed in this year and it's been a really good one.

If I'm guessing I think I made about £300,000 this year - as those of you who came to seminars this year saw, my accounts are bursting with nice profits banked. And those of you who came obviously saw I make a lot of money spreadbetting which I don't cover on the website.

He has also commented recently that since the financial crisis began he has made more profit than ever and most of that it would appear is from being on the long side. Had he listened to the doom and gloom types I suspect he would have made nowhere near as much.

The lesson here has to be avoid the guru's who think they know the world is coming to an end. Avoid too much doom and gloom, because there will always be plenty of bad things going on somewhere in the world. If you have a decent system in place and the right psychological makeup it is still possible to make money from the market and this will still probably be the case in 2013 regardless of fiscal cliffs, debt traps, ongoing euro crisis, etc, etc....