Francisco Lopez Lubian

In times like the present one, with almost everybody panicking, sharp and cool headed investors used to step in and make a fortune. Ultimately, it´s a matter of following a rule as simple as that: buy when is low, sell when is high.

The question is: is it really low? Is it low enough?

On the plus side, capital markets are in historical low prices (for example, FTSE 100 and IBEX 35 indexes below a 9 price-earnings ratio) and bonds rated BBB (the lowest to qualify for investment grade) yielding more, in comparison with government bonds, than ever since 1932.

On the negative side, investors´ confidence is reaching an all time low. Global Investor Confidence decreased in October by 17.5 points to 58.2 from a revised September level of 75.7, according to results released by State Street Global Markets (see http://pr.statestreet.com/us/en/)This index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence. Data for October results were taken in the period September 17 to October 15, and “they show the largest single reallocation away from risky assets that we have witnessed since it first became available in 1994”, said Paul O´Connell, State Street Associates Director.

Reasonability of personal decisions depends on realistic alternatives available, and on logical expectations. In any case, it is important to distinguish between to be brave and to be stupid. In most cases, information makes the difference.

Posted on 23 Octubre 2008

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