Stock markets around the world generally move in cycles. There are times when the economy is strong and share prices are trending nicely upwards, and conversely there are times, such as now, when the economy is looking weak and shares are trading at very low levels. So why investors are not rushing to buy shares in this current economic climate?

Well I think sentiment has a major part to play here. You only have to switch on the news to see jobs being cut, large companies closing down and the latest news of the upcoming recession on a daily basis. It's all extremely depressing and is a major reason why people are not at all positive about shares. This is a common response to all the negative news being broadcast but it's not necessarily the most rational response.

If you take a step back and look at the current share prices of a few of the largest and most profitable stock market listed companies, you will probably notice how low their share price is currently trading at, particularly when compared to a few years ago. Now take a look at how their profits (and future predicted profits) correspond with these same profit levels of a few years ago. In a lot of cases you will see that these companies are now valued far too low, even allowing for a tougher trading environment in the next few years.

Therefore this means that a lot of these companies are hugely undervalued and yet there are still very few people actually buying, so is negative sentiment and the threat of a recession the only reason why this is the case?

Well I think another reason is because there are fewer genuine investors operating in the stock market nowadays. In this era when short-term trading facilities are available to almost everyone, a lot of people buy and sell shares over a shorter period of time and speculate on the short-term price of a share using things like options and spread bets. Indeed some people believe the days of traditional buy and hold investing are behind us.

As with society in general, we are all so impatient nowadays and few of us like to buy shares and hold on to them for years and years like Warren Buffett, for example. I still think this is a decent investment strategy but there's no doubting the appeal of short-term trading because in this volatile market, shares can now move 10-20% in a day quite easily, and yet this used to be completely unheard of.

Buy low and sell high is the golden rule of, trading in shares. It is easily declared, but difficult to implement. The low price of a share is not the invitation to purchase it. The price may further shrink. It may shrink to the point of zero and the company may go into liquidation. Before buying any share, notwithstanding the best recommendations from the broker, you need to have well-researched reasons to include it in your portfolio. Even the predictions based on technical analysis, are not absolute predictions. Several market factors, their pressures and counter-pressures are responsible for the prevailing level of the price of a share.

So overall I think there are a number of reasons why investors are not rushing to buy shares. Negative sentiment and the threat of a recession is the main reason, but I think the availability of short-term trading is also a factor.

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