When the pace of change is so frantic, investors who can step back from the fray long enough to question their actions and truly examine their investment strategies, are those who will come out on top over the long-term.
Is everything you believe to be true really so? Are your most commonly held beliefs actually correct when put under the microscope of closer scrutiny? I only ask these questions because at present the accepted prognosis of the market's health doesn't seem to stack up.
Even though there has been a significant rally in the equity markets since March, many commentators still say investing is the wrong option at the moment. In fact many believe the rises have been little more than a fluke and that further losses are just around the corner.
However I do not believe this to be the case. Since 3 March, the FTSE 100 has risen from a low of 3512 to hit a high of 4516 on 1 June. It has since slid back to 4140 at the time of writing. This still represents a rise of 18%, and while there will be fluctuations over the coming months, I firmly believe the trend will be steadily northward.
Similarly, the S&P 500 was trading at a low of 676 on 9 March and since then has hit a high of 946 on 12 June before settling back to 879. This represents a jump of 30%. Again the ongoing trend is going to be upwards, despite possible setbacks in the weeks and months ahead.
So why exactly are these rises down to more than luck and misplaced sentiment? Whether the recession turns out to be a U, V or W shaped dip is materially irrelevant. If investors are to gain from the upturn that will inevitably come as economies rebuild and markets recover, they have to accept there will be turbulence to endure in the short term.
However because of the trade and fiscal deficits that economies are running, many pundits are predicting that further trouble lies ahead and investing money in equities is a bad decision.
This is not the case and, as ever, history has some valuable lessons to teach us on this front. It is not deficits that investors should be worried about, but surpluses. In 2000 it was surpluses that created problems for investors as markets tumbled and repeatedly there have been difficult lessons to learn when bubbles have burst.
However, deficits have always preceded significant rises in the equity markets and whether it was 1949, 1975, 1982, 1992 or 2003, there were significant gains to be made for those who were not put off by the shortfalls and instead maintained their positions or bought in at these low ebbs.
So once investors have stopped and taken the time to examine their own beliefs, the next challenge is to then really look and listen to all of the information available and evaluate it correctly.
It is very easy to miss the real messages and signals from all of the information we are presented with, especially when much of it is distributed by a notoriously negative media. However those who allow themselves to be cajoled along on the general noise of public opinion are unlikely to uncover a strategy that serves them well into the future.
There is no doubt that further challenges lie ahead for financial and commercial markets and that economic news is unlikely to make attractive reading for many months to come. However for investors with a long-term view, remaining invested in equities or buying into the markets at the moment represents the best opportunity to benefit from the recovery over the coming months and years.
One very positive sign has been the Golden Cross that has been seen or is due to happen in many markets. A Golden Cross occurs when a short term moving average overtakes a long-term moving average. The fact that the 50 day moving average has now overtaken or is set to pass the 200 moving day average in many markets is a very clear and historically reliable sign that we have probably seen the bottom.
Many have been unnerved by the current financial crisis, and this is understandable. However it is not the only financial crisis we have endured and the financial nightmares of 1932, 1857 and 1807 all saw the world's financial systems come out the other side and in better shape for the future.
Warren Buffett is quoted as saying: "Chains of habit are too light to be felt until they are too heavy to be broken." It is exactly for this reason that investors must continually stop, look and listen. Only then can they be sure they are investing safely, wisely and profitably. Simply following the crowd will result in none of the above.
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.