Citywire for Financial Professionals
Share this page:
Stay connected:

Citywire printed articles sponsored by:

View the article online at

Why 2013 may be a great time to start investing

A leading investor explains how savers can look through our economic troubles and see the opportunities for growing their money.


by Gavin Lumsden on Nov 30, 2012 at 14:26

Why 2013 may be a great time to start investing

Richard Buxton, the fund manager at Schroders whose 10-year record I gleaned for 10 investment lessons in the summer, has written a really interesting and encouraging article on why now is a great time to be investing.

Buxton manages the Schroder UK Alpha Plus fund, which despite the best efforts of the financial crisis to spoil things, has delivered good returns since its launch in 2002.

It is Buxton’s belief that we ‘are in the foothills of a new bull market’ in the UK. By this he means that when we look back in 10 years’ time we may see that the UK stock market, as measured by the FTSE All Share index, defied the economic gloom we’re currently facing and rose a long way, making investors money in the process.

You could say that Buxton (pictured) would say that, wouldn’t he? Indeed it would be an unusual fund manager who argued you shouldn’t invest.

However, there is a ring of truth to Buxton’s argument. Firstly, he has credibility. When he launched his fund ten years ago Buxton correctly anticipated that the bursting of the dot com bubble at the end of the last century signalled that the booming stock market conditions of the 1980s and 1990s were over. Fund managers like him would have to work harder to make money in a market that would trade sideways, he thought.

Well, as it turned out the market didn’t go sideways exactly. But if you look at a chart of the FTSE All Share you will see Buxton was right in that the index is still below its peak at the start of 2000. It soared to another peak in 2007 before crashing and recovering in fits and starts over the past three years.

Essentially, Buxton was correct, the market has gone nowhere, hence the depressing tag of ‘the lost decade’ that is often used to discourage investors. However, do remember that even in this hostile market investors enjoyed a decent total return from the UK stock market, but mainly only through reinvesting the dividends their investments paid out.

So what of the future?

The crux of Buxton’s message to new investors is to forget about the poor economic outlook and focus instead on the fact that because of all the economic doom and gloom the UK stock market is reasonably good value at the moment.

He says that when he forecast over a decade ago that share prices would go sideways he was not looking into a crystal ball to foresee the financial crisis and the credit crunch. He was simply acknowledging the fact that the UK stock market at the time was expensive. Share prices then on average traded at more than 20 times their earnings. Today that figure has fallen to 11.

Buxton is making the point I made in my recent video outside Queens Park Rangers stadium that it is the price of an investment that drives the return. Follow the mantra of ‘buy cheap, sell high’ and you won’t go far wrong. 

The UK stock market is not cheap but it is fair value. According to Buxton, history shows that when UK shares trade at 11 times earnings there is a good chance that the following 10 years will see them generate positive, above inflation annual returns – perhaps even as high as 10% or more.

Don't be a pessimist

I think there are two important points to be taken from Buxton’s article. One is that it rarely pays to be too pessimistic when investing. Cautious optimism is the order of the day. Secondly, avoid going with the crowd and try to be a bit 'contrarian' in your outlook.

It is an interesting exercise to cast your mind ten years into the future and to imagine what it would be like looking reviewing the decade to come.

It is just possible that Buxton is right and that the three big things many investors are worrying about today will seem minor in retrospect. The big worries are:

  • the threat of the US ‘fiscal cliff’ that could see the world’s largest economy fall back into recession next year as a result of $600 billion of automatic tax rises and spending cuts;
  • the slowdown in China – can it avoid a ‘hard landing’ that would disrupt the global economy?
  • the eurozone financial crisis – will the euro survive if countries like Greece are forced to leave the single currency?

Up the down escalator

A cautious optimist can find reasons to play down each of these threats:

  • US politicians are likely to find a deal that will turn the ‘cliff’ into a ‘gentle slope’, in Buxton’s words. Meanwhile, the US economy is showing encouraging signs of growth on the back of a recovering housing market.
  • No one outside China really knows what goes on inside the world’s second largest economy and real risks remain. But with the leadership transition over it is more likely that the dangers have subsided.
  • Similarly, although the eurozone debt crisis is far from over and much of Europe is stuck in recession, we may have passed the worst. The European Central Bank has said it will do whatever it takes to preserve the currency union and after a seemingly endless list of summits the politicians seem to be getting to grips with the real issues. 

Besides, one of the enduring mysteries of investment is that the behaviour of the stock market is not linked to short or medium-term trends in the economy. In other words, it doesn’t pay to get too hung up on the big picture.

As Buxton says, the stock market tends to move in a ‘series of escalator-type movements’ in which long periods of poor returns are followed by long periods of much better returns. Given that starting valuations for share prices today are attractive after an extended poor period, the next phase may well be up.

13 comments so far. Why not have your say?

Dividend Income

Nov 30, 2012 at 16:27

I concur, but only once the inevitable bubble(s) has(ve) popped. Perhaps not yet, but in the next few years.

Having turned on the money printing presses to prop up assets simply has delayed the inevitable of higher inflation (>5%), higher interest rates (>7.5%), stock market crash (>10%).

Perhaps once aggressive inflation really starts to take hold of >10%, and the pound has collapsed, and with interest rates going sky high, the subsequent massive sell-off in share prices will create great opportunities to pick up some truly historically undervalued high quality dividend paying companies. So, I am happy to remain on the sidelines for the time being in order for this scenario to play out during 2013 - 15.

report this

Alan Anderson

Nov 30, 2012 at 18:20

So I guess you missed out on Barclays, Standard Chartered, Lamprell, Invensys, Man Group, BAE Systems, First Group, Diageo, Resolution, Old Mutual to name but a few.

report this

Dividend Income

Nov 30, 2012 at 18:28

Hi Alan

With the exception of only one company mentioned none were, during early 2011 - now, historically undervalued and sufficiently financially strong to sustain and increase their dividends to have been purchased by our long term Dividend Income Portfolio

report this

Alan Anderson

Nov 30, 2012 at 18:49

Hi Sorry. I didn't pick up anything there on 'early 2011'. It was more the 'waiting on the sidelines till 2015' business that caught my attention. There's stuff going on most of the time as far as I can see. It's always about work in progress and weighing up the risks. And I may not be around in 2015!

All the best.

report this

Dividend Income

Nov 30, 2012 at 18:54

Alan, my trading days are long past. . .

As a long term dividend income investor, in particular two things are important to me:

1. the price at which I can purchase a historically undervalued company, and

2. the sustainability, amount and growth of the dividends these companies will pay is much more important to me than what the underlying investments could be sold for (until, of course they have become historically overvalued when I will sell, and repeat the process)

report this

tough enough

Nov 30, 2012 at 23:27

Dividend income investor

Im afraid that I agree with your first comments about asset bubbles etc.

Over many years I have always managed to avoid the big loses...the 1987crash ..the idiotic dot com period and the banking crash fiasco and Im afraid more major challenge await.

However shares are up for the moment so guess what...... its the land of opportunity again...........sound familiar ?

report this

Anthony O' Grady

Dec 01, 2012 at 09:08

I always thought the common wisdom is that long term secular bear markets end with dirt cheap P/E ratios and dividend yields in double figures. Bob Prechter of Elliot wave fame is calling one more major downturn in markets. I intend to gamble on this view and keep my powder dry. I already have a list of the investment trusts which I intend to pile in to;

report this

Dividend Income

Dec 01, 2012 at 11:41


I am in the process of writing an eBook about all this and the impact it will have.

Release date "somewhere" in January, via

report this

joe stalin

Dec 01, 2012 at 11:46

If inflation is going to go up then money should move out of bonds back into equity as bonds will fall and yields rise which is the reverse of what we have been seeing over the last three to four years. The question is how good will the central banks be this time around at keeping the lid on inflation without materially compromising growth.

report this

Geoff Downs

Dec 01, 2012 at 14:38

Anthony O'Grady,

Think you are calling it correctly. However unlike you I think once the fall as happened markets may stay low for many years. Hope I'm wrong.

report this

Anthony O' Grady

Dec 01, 2012 at 18:56

Have a look at the debate between Peter schiff and bob Prechter on you tube. Both agree that debt in the west is out of control, and that current central bank policy is madness.

However interestingly divergent views on how the money printing will end. Debt deflation v hyper inflation. Prechter makes the point that given the amount of money printing already done, inflation should already be running away. Also makes the point that the Japanese printed for years, and all of this cash disappeared down a black hole.

The real problem in the west, and japan is spare capacity and lack of demand.

On markets, secular bears tend to last 15/20 years.

1966-1982 markets went nowhere

1982 - 2000 huge bull market fuelled by huge amounts of cheap money

2000 - ???- how low can stocks and property go?

Prechter says 90 per cent in nominal terms.

Schiff on the other hand thinks that he fed will just print ever increasing amounts of dollars, and that this will precipitate a major currency crisis because holders of US treasuries will start to dump their holdings because they don't want to be redeemed in devalued currency, hence bond markets go south, interest rates go up and US has hyper inflation because dollar drops like a stone. Even in this environment, stocks would get hammered.

As for equity fund managers, I always admire their desperate optimism.

report this

Geoff Downs

Dec 01, 2012 at 19:27

I watch those two guys on a regular basis, and others. I think it's deflation and have done for a while, although virtually every poster on here thinks inflation.

I think markets will decline, may be slowly or a sudden crash. Mr Bernanke has influenced things in a major way, so it's not clear if QE will continue to push markets higher.

On the basis the US agrees on the fiscal cliff, that would give markets a boost.

I also sense an increasing bullish mood which would point to an eventual fall.

The Global Economy is in a mess, but judging by remarks from the financial industry, you wouldn't think so.

report this

Jayanti Gandhi

Dec 02, 2012 at 17:40

Market is Casino. Mr Buxton is a lucky guy in that era. Can he give guarantee of growth say over 10 years?. If so most of investors ( I certainly ) will go to him and he will be millionaire from charges.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

Sponsored By:

More about this:

Look up the funds

  • Schroder UK Alpha Plus A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Richard Buxton
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

What others are saying


Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.

Latest from Investment Basics

See all headlines


Accumulator: FTSE takes crown ahead of royal wedding

by Daniel Grote on May 18, 2018 at 17:11

Sorry, this link is not
quite ready yet