Facing up to the investment challenges in the year ahead

After three years of falling stock markets around the globe you could be forgiven for thinking that this might be a great time to buy cheap stocks. And yet the verdict on that one is very much still out.

The outlook for corporate profits is poor and the looming conflict in Iraq will probably be bad for equities, at least in the short term. We all have to hope that the Iraqi situation is resolved quickly, one way or another and that oil prices recover to a level that will not send capital markets into a downward spiral.

In the meantime, investors can be forgiven for sitting on their hands and waiting for better times. A few brave souls may get it right and plunge in early, or they may join the vast numbers of brave fools who have had their fingers burnt in recent years.

Investors normally move as a pack, and there is safety in numbers. Stock markets have only fallen for three years in a row twice in the past century, in 1929-31 and the early 1940s. So the chance of a fourth down year must be judged pretty slim.

However, who knows what sort of market gyrations are to come before we reach a new bottom for stock markets. A number of experts see a 20-30% fall before a new bottom is reached and from there shares might climb above present levels by the end of the year.

Or it might be that we are already at the bottom and that shares will increase from here. Will there be a big bounce in share prices? Again it could happen, but are you prepared to risk your money on it?

For the past three years the cautious investor has been the least likely to lose money and it is hard to argue against that position in present market conditions. The right moment to invest will come, and let me wish you all success in spotting it during 2003.