Friday, February 18, 2011

The wild and wonderful FTSE

UK equities have done spectacularly well since the beginning of 2009. Although, the Footsie hasn't quite regained all the losses incurred at the time of the financial crisis, it is almost there. If current trends continue for a few more months, the Footsie should surpass its precrisis highs.

At this point, I suppose I should warn you that the previous paragraph t is not a recommendation to buy anything. As the familiar investment mantra warnds, share prices can go down as easily as they rise.

Even though the Footsie has enjoyed a reasonably steady recovery prices have still swung around quite violently. The extraordinary volatility emphasises the great strength of equity markets. It is quite possible to lose large amounts of money on equities. As the chart amply illustrates, when prices crashed in 2008, investors suffered appalling paper losses.

Moreover, when investors make losses there is no recourse to a taxpayer bailout. If an investor places their money on a share that turned out to be a dog, they have to suck up the losses. Therefore, no one can complain or feel aggrieved if those same investors are now making healthy gains.

So if you've made any money recently on the Footsie, I congratulate you. If you start making losses tomorrow, it is your business and I don't want to hear about it.

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