Play the long game and reap the rewards

Ignore the economic forecasts. Even the head of the Federal Reserve, Alan Greenspan, admitted he couldn't predict interest rates more than six months out, yet investors obsess over what might happen with inflation, GDP or central bank policy

- Peter McGahan

WE don’t rip up our driving licence every time we hit a pothole. Some investors can react like this the moment markets get bumpy. They panic, bail out and swear never to invest again - until the next boom, of course.

Market wobbles aren’t unusual; they're normal and essential. I chatted this through with our investment director Martyn Page last week when discussing the market reactions to the Middle East. He reminded me of Peter Lynch, one of the most successful fund managers of all time, who spent 13 years at the helm of Fidelity’s Magellan Fund. He turned it into one of the best-performing funds in history not by timing the market, but by understanding it and staying calm when others were running for the exits.

From 1900 to the time of Lynch's talk there were 50 declines of 10% or more in the US market that's roughly one every two years and 15 of those have been serious drops of 25% or more: full-fat bear markets. That's one every six years, almost like clockwork: so if you're in this for the long haul, expect it. Markets will fall, they'll rattle your nerves and they'll test your conviction: and yet the market has continued its long upward march, doubling roughly every nine years.