The world is suffering from a major crisis; a credit crunch that is crippling major economies. It is therefore not surprising that the effect of the global financial market meltdown is causing share prices to fall. The consequential effect is that many investors are liquidating their positions to take their money and profit that is if there is any left. In fact, the market crisis has left many confused.
Many stock markets around the world have witnessed a decline in share prices, of which the Ghana Stock Exchange (GSE) is no exception. At the latter part of 2008, share prices of many listed companies on the Ghana bourse saw massive declines. The market has remained very quiet since the beginning of this year, with fewer trade volumes
being recorded, compared to previous years.
The view that the weaker economic fundamentals of the country will impact negatively on the exchange this year has caused more panic and worry among investors. Leading analysts are of the view that for a long time, the global economic downturn would have a toll on activities on the GSE as economic recovery in the advanced countries would be slow and painful.
The questions we should begin to ask ourselves as investors are: Should this scare us from buying more shares - that is, taking a position in equities? Is this the time to hold and buy more? Will the global economic crisis last forever?
In an editorial in the New York Times edition of October 16, 2008, the most famous investor in history, Warren Buffett, told the world not to panic, for this is the best time to buy stocks. Is it really?
If stock prices stay cheap, Buffett claims his “non-Berkshire net worth will soon be 100 per cent in equities.” When the greatest investor in the world says it is time to buy stocks and that he could be 100 per cent fully “equity-invested” soon, then I think we should also prepare to hold and buy more.
“Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow on its efforts to alleviate the current crisis will probably prove inflationary and, therefore; accelerate declines in the real value of cash accounts,” Buffet said.
As a long-term investor, I agree with Buffet's ideas. I guess we have all heard the adage: “Buy more when share prices are falling and sell when share prices are rising.” I believe we all have to follow that. Nevertheless, in reality (when share prices are falling), we tend to do the opposite and we lose in the long term.
LouAnn DiCosmo writes: “What makes Warren Buffett the investor whom every investor wants to be like is that he approaches investing differently from the way most men do: He is patient and does thorough research. He waits for the right price to buy. He seeks to never sell the companies he invests in. He's the anti-trader, if you will.”
If we really want to reap the benefits of the equities market in the long term, then in my view, this is the best time to hold and buy more. From history, the stock market has outperformed all other financial markets in the long-term.
Credit: Francis Somuah