Brian Tora column

As the feel-bad factor returns to dog the markets, it makes sense to take a fresh look at the investment process

AFTER THE rather more settled conditions that I found on my reluctant return from the equable climate of the Mediterranean region, the market has developed a distinctly wintry feel.

The cold front appears to be concentrated over Europe, with some quite significant falls in continental markets taking place, as well as the biggest one-day slumps recorded in London since the crash of 1987.

Markets are buffeted by fear and greed (although I consider money and confidence to be more important) and in this case it is fear of an economic downturn fuelling the fires of uncertainty.

Enough worry has been generated for the finance ministers of the world's leading nations to put their heads together to try to find ways of restoring the feel-good factor in markets. So bound up is our future well-being with the strength or otherwise of financial assets these days that the economic dog can be wagged by the market tail.

We will not be putting our heads together to determine whether or not the recent pull back creates a buying opportunity until next week, but I imagine investment teams everywhere will be debating what, if anything, market moves should be dictating in the way of action or policy changes. It is all part of the investment process. Now there is a useful bit of city jargon for you.

Back in the 1950s equity investment was only just becoming popular. Managers were regulated by the Prevention of Frauds (Investment) Act, itself introduced only at the end of the decade. The valuation of shares was crude and the regulation of information virtually non-existent. Such was the development of the investment management industry that by the mid-1980s new legislation was necessary. Not only was information more strictly controlled, but rules came in on competence and dealing standards.

If you want to manage money for pension funds or large charities these days, they will want to know what your investment process is. How do you select your shares? Are you a value or a momentum investor? What valuation tools do you use? Do you follow discounted cashflow, is economic value added your chosen criteria, or do you simply stick a wet finger into the air to see which way the market is blowing? Of course, no one would own up to the last approach, but believe me it is more common than people dare think.

In the old days so few people bought shares based on real research that those who took the time and trouble to do their homework would stay ahead of the pack. Today the pack are all wolves and inching to keep your nose ahead requires dedication and effort - and a proper process. There are ever more sophisticated, predetermined, computer-driven ways of determining where to invest your money, but in the end it is discipline that counts most in the investment process. Watch this space for how to build one of your own.

Brian Tora is chairman of the Greig Middleton investment strategy committee