Disaster could be the signal to buy everything

Updated: 15:38 EST, 17 July 2008

The man at the next table was lamenting that everything was getting more expensive. Not necessarily, insisted his cheerful dining companion, who, I soon gathered, was a stockbroker. Shares are much cheaper, he explained.

I was lost in admiration. To make people's losses sound like a gain is the mark of a true salesman. Which, remember, is what a stockbroker is  -  optimistic, reassuring and dutifully confident about his wares.

Signals: Markets are naturally volatile

No doubt many savers who have seen their shares tumble are nervously consulting their broker/ salesman, though all too rarely asking why they were not advised to sell ahead of, or at the start of, the economic tsunami still sweeping the world.

Your broker will always have a good stock of familiar cries to cushion the discomfort of savers. The market has turned sharply? Well, that is really a necessary correction, is a standard answer. (But not one you needed, is what you ought to reply).

Markets are naturally volatile, the broker will add, and reverses are only to be expected at times. Besides, you must remember that you are in the market for the long-term. Now is not a wise time to sell, etc.

So we have brokers reluctant to admit they got the market wrong and investors who are reluctant to sell anyway because accepting a loss is emotionally demanding.

Investors in this context, by the way, may also mean many of the big boys, such as pension funds, since they, too, hate to admit they got their strategy wrong.

The combination of brokers reluctant to advise selling and investors who don't want to hear it anyway is a potent one. It means investors holding on for too long and then, when things really get bad, joining a Gadarene rush to sell.

Markets have always overdone boom and bust with panics among investors when they think they are missing the boat upwards or downwards.

The literature on market panics is not only extensive, but also goes back centuries. Human nature does not change.

All of which, you may say, is quite interesting, assuming you are still with me. But what about some practical advice?

No bell rings when a market hits peak or bottom. One of the Rothschilds said he grew rich by buying too late and selling too early  -  meaning he never expected to hit the perfect moment for either. It is not given to man, even a Rothschild, to know such things.

But there is one moment to look out for. The Americans are making mildly friendly noises to Iran, which might mean something or nothing.

If Israel does attack Iran  -  which it would do only with American sanction  -  then buy everything you can lay your hands on as markets everywhere collapse and oil hits any price you care to think of.

Of course, it could be the prelude to a global conflict. But in that case the quality of your share portfolio will hardly be your first concern.

History suggests another sign worth looking for. The stock market, in early 1975, had fallen more than 70 per cent from its 1972 peak, thanks to a jump in oil prices, the prime ministership of Ted Heath and then the chancellorship of Denis Healey  -  a pretty grim combination.

When Burmah-Castrol, a pillar of the British business world, went under, the immediate fall in the stock market was pretty bad, but nothing like as cataclysmic as might have been expected. Bottom had been reached. The market had run out of sellers. Share prices doubled within weeks.

But we seem a long way from bottom now. Like others, I find it hard to see the next development. Things are either bad or very bad, indeed  -  not much in between.

Banks' share prices have been notably bad performers in the current market, despite the enormous remuneration made to bankers in recent years. Or perhaps we should say because of it.

They have taken excessive risks to get their bonuses, knowing that, at worst, they will get paid off handsomely if all goes wrong. As I have urged before  -  and evidently it is more needed than ever  -  we need major reform.

Top bankers' bonuses should be in the form of their own shares. And these should not be eligible for sale until, say, five years after the individual has retired.

They would work hard to see that the bank prospered, but also that when they left, there were no excessive risks lurking in the woodwork.

Today, we have banks so encumbered with high risks taken during the boom times that they are reluctant even to lend to each other. This can be prevented  -  but probably won't be. 

Scope for another whine from Phillips

Trevor Phillips, the ludicrously titled chairman of the Equality and Human Rights Commission, complains that TV is 'hideously white' and that 'ethnic' characters in dramas are caricatures.

But that approach is normal on TV. There is scarcely a single field in which I have ever been involved where the characters as portrayed on the screen are not caricatures.

Why 'ethnics' should be exempt from this tiresome process is not clear  -  except that it is just scope for another whine which characterises Phillips's pronouncements.