What on earth do investors do now?

All around the world stock market investors are feeling poorer and wondering what to do. Is it too late to sell now? Or is it time to buy? Or should we just sit tight and do nothing?

Let us consider these options from the perspective of the typical Middle East investor, not dependent on investment income and investing for future capital gain.

Selling out when global stock markets are up to 40% down from recent peaks looks rather stupid. Over the past five decades stock markets have always recovered previous peaks within a couple of years, though admittedly the current three-year bad run for stocks is something not seen since the 1930s.

But sell now and you crystallize a real loss, and there is nowhere obvious to shift your money to regain that loss. How about buying more shares now? That way you average down your losses, but if shares move down again you are left with egg on your face.

However, selective buying of blue-chips with solid balance sheets is a sensible strategy with markets at these levels. Good shares get cast down with bad ones in a bear market, and buyers who can afford to wait a few years can not really go wrong with buying quality stocks at cheap prices.

Why wait for them to go back up before you have the nerve to buy them? Indeed, the further downside for such shares may not be much compared with the potential upside, so long as you do not back another Enron or WorldCom.

Which brings us to the head-in-the-sand option? Doing nothing always has an appeal to worried people, if only because it requires the least thought and ignores the problem.

However, with markets having fallen so far, there is an argument that says it is too late to get out, and the danger is that if you do get out you will miss out on the recovery. For readers trapped in mutual funds, who do not need their funds right now, that is probably a solid argument.

But life is not always that easy. What if your pension fund decides to exit the market for you? Many pension funds in the UK and US are doing just that, generally for reasons to do with their own fund management rules.

Well, the answer is surely to keep a close eye on what your asset managers are doing, and if you are able to move against them perhaps now is the time. For if they have got it wrong so far, do you have any confidence that they will make better investment decisions in the future.

These are times for taking a long, hard look at investment strategies, and making sound decisions based not on sentiment but a fair assessment of the future outlook. Good luck!