I feel that the world economy is still fragile and, even if things improved, it would not take much to send the stock market crashing again.
A. History is all we can go on, and if you look at graphs of world share prices, the long-term trend is always upwards.
And that applies after much bigger disruptions than those that have resulted from the Iraqi war and September 11. Consider, for instance, the two world wars and the oil crises of the 1970s.
ASB Bank Investments quotes research on the performance of 16 countries - unfortunately not including New Zealand - over the 20th century. In every country, shares clearly outperformed bonds. Average annual returns on shares ranged from around 8 per cent in Switzerland to 13 per cent in Japan. On bonds they ranged from 3 per cent in Germany to 8 per cent in Spain.
For the world, share returns averaged more than 10 per cent and bonds less than 6 per cent. Differences that big have a huge impact on long-term returns.
ASB also reports that new research shows shares are more volatile than previously thought.
The most volatile sharemarkets last century were Germany, Japan and Italy - which suggests that losing wars is not a steadying influence.
Germany's worst return was also the world's worst, minus 87 per cent, in post-war 1948. Its best was in 1923, but the ASB doesn't give us the number, saying the hyperinflation of the time was to blame. Germany's average return was around 10 per cent, ranking it 11th out of 16 countries.
In Japan, the worst return was minus 44 per cent, in 1920. The best was 121 per cent in 1952. And, as previously noted, Japan's 13 per cent average return was the best of the 16.
Italy's worst return was minus 47 per cent in 1945, as World War II ended. But, in the following year, it had its best return - and the best for any country in any year last century - of 160 per cent. Italy's average annual return, of 12 per cent, is third best of the 16 countries.
It seems that even in countries hugely affected by war, long-term share investors can be well rewarded - sometimes better rewarded than in peaceful countries. Sad but true.
Of course there can be no guarantees that any of these trends will continue. That's why share returns are higher than fixed interest.
But look at it this way: when you buy a share, you become part owner of a company that produces goods or services.
Most companies, over time, perform better. True, we got over-excited in the late 1990s about the effects of new technology - which led to the hi-tech boom and bust. But computers have made most companies more efficient, as have other technological and management advances.
And, as companies keep doing things better, the value of share investors' holdings grows. I can't see how recent world events have seriously damaged that process.
If you want to be absolutely sure that your investments are safe, skip shares. But, given that you are in a generously subsidised company super scheme, it would be a pity if you don't put some of your savings in the scheme's share fund.
You've seen how sticking with property through bad times pays off. I'm sure the same will be true of shares.
Q. I've been reading with interest the letters from your correspondent who advocates single share investing. He or she has done very well - so far.
It seems so easy to beat the market that it's a wonder that everybody doesn't do it.
But it is impossible for everybody to beat the market because its level on any day is the result of trading from all those who are in it.
So, on average, for every person who beats the market there is some poor soul who has underperformed it. And I can guarantee that those who underperformed didn't set out to do so. I bet, too, that they didn't make a big song and dance about their lack of success.
So, if you think you can outsmart the market, go ahead and pick a few winners. But be prepared to lose big time as well.
A. Well put.
I'm sure there's a huge correlation between luck in the market and noise made about it. Read on.
Q. I was interested to read your article in the Herald today. What prompted me to send this was your comment about financial advisers.
Some years ago, when obtaining some advice, I mentioned I had shares in Sky City. The lady was sceptical.
But whenever I have seen her since I have a gentle dig! And she admits it wasn't a bad decision.
I guess I should have sold them earlier this year and taken the profit, but I didn't. Hopefully I will continue to get a reasonable return.
My main reason for this email is to inquire how you go about buying and selling online?
A.You're a great example of a singer and dancer.
Something tells me that, if Sky City hadn't done well, you might not have been quite so keen on reminding your adviser about it.
As for buying and selling online, yours was one of several inquiries about it. I'll go into it in next week's column.
Q. Last week's correspondent who espouses the virtues of single-share investing only reinforces the high risk/high gain theory and somehow purports it to be failsafe.
Would he (I assume it's a he) still now advocate a buy of his beloved Sky City shares in the face of the Sars-induced downturn and the impending anti-smoking bill?
The unforeseen can afflict any sector at any time, including so-called recession-proof securities such as Daily Planet.
I propose that the hype surrounding the listing, rather than solid economic fundamentals, artificially boosted the value. He simply got lucky. The price could just have easily slid the same day.
An example of a good prospect is another Sky, this time TV. Its infrastructure subsidising is reducing and after years of loss-making it will soon start generating solid profits.
Combine this with its ability to hedge programming costs at a more favourable exchange rate, and its almost monopolistic environment and the attractiveness becomes clear.
However, I don't think any adviser worth his salt would recommend a portfolio comprising a single stock.
People such as your correspondent can quickly get sucked into buying and selling single stocks as the price fluctuates, and having small gains eroded by brokerage fees.
The key to a long-term financial strategy is still low risk through diversification.
A. I agree with everything you say except the bit about Sky TV.
Just as I said to last week's correspondent that everyone, particularly market analysts, must realise the strengths of Daily Planet shares, so they must appreciate the strengths of Sky TV.
And if market players know a company's prospects are good, they will already have bid up the share price.
The market overprices as often as it underprices. And no one can tell in advance which shares are underpriced. If they could, they would be billionaires.
True, an adviser worth his salt shouldn't recommend holding only Sky TV. But that's not just because diversification lowers risk. Sky TV's share price is no more likely to rise than any other company's.
* Mary Holm is a freelance journalist and author of Investing Made Simple.
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