Share Dealing: When to Buy and Sell

Don't Stay in Too Long

It is not always necessary or desirable to remain fully invested in the stockmarket. The ability to match the average performance of the market is of small comfort when the average is falling. If you can predict a market crash, then it will pay you to anticipate it by 'going liquid' - selling out for cash.

Recent experience suggests that index-linked gilts may provide the best home for funds pulled out before a bear market, assuming, of course, that the bear market occurred. This is because in recent years inflation has been a serious worry and the cause of share price underperformance.

However, index-linked gilts would be a poor investment if a depression occurred. Under these circumstances there is no money anywhere and inflation may even be negative. Index-linked gilts show an increase in capital value (at the repayment date) which is based on the government's official inflation rate, the Retail Prices Index (RPI). Any alteration in the basis of calculation of the RP1 permits investors to demand instant repayment. The government has indicated that index-linked gilts would not drop in value if inflation were negative.

Ordinary gilts have proved in recent decades to be a poor investment since their fixed income repayments are reduced in real terms by inflation. They ought to be a good investment in a depression and have indeed performed well in the early 2000s.

The Start of a Bull Market

Bull markets start only a few times during an investor's active career, so it is essential not to miss them. Various warning signs of the start of a bull market are known, for example:

• Short-term interest rates fall.
• The 'yield gap' narrows .
• There is a sudden fall in the market as everyone agrees that it is not worth hanging on any longer and sells out.
• The Coppock Indicator starts to rise from a negative index.