ON October 27, 2008, the FTSE 100 Index hit a low of 3,665, down 45 per cent from its peak of 6,750, on October 15, 2007.

The value of investments linked to the UK stock market will have been similarly affected.

Have we already hit the bottom and started the recovery process? Only time will tell.

In the shorter-term, markets respond to news. And news is random, which means market movements are random.

The only way that you can reliably time the market is in hindsight. It is impossible to do in advance, unless you rely on luck.

One of the most successful investors of modern times is Warren Buffet, chief executive of Berkshire Hathaway, who uses a simple rule to decide when to invest: “Be fearful when others are greedy and be greedy when others are fearful.”

Presently, when there is widespread fear around the world, Buffet has returned to the market and indicated that he will soon be 100 per cent invested in American shares.

Over the longer-term, markets tend to move cyclically, and any over-exuberance will often over-correct itself before reverting to the mean.

Human nature means that most investors look to buy when everything appears to be rosy because the market has already risen.

All too often, this can be a sign that the market was at, or approaching, a high.

Conversely, many decide to sell their investments after markets have fallen, turning paper losses into real losses in the belief that they should salvage what they can.

This usually means shortening their intended investment time horizon and is not usually the best strategy.

The long-term returns from the FTSE All-Share Index over the period since 1955 have been in the region of 12 per cent per annum, but in order to capture these returns, you would have had to remain fully invested through good times and bad.

Since 1990, if you had missed the best ten days, which often occur at the bottom of a trough, your average returns would have been 7.6 per cent per annum, reducing to 5.3 per cent if you had missed the best 20 days, 3.4 per cent if you had missed the best 30 days and only 1.7 per cent if you had missed the best 40 days.

Up to now, the markets have always recovered after every fall.

The average duration of a bull (rising) market, has been 23 months and the average bear (falling) market nine months, as measured by the performance of the FTSE All-Share Index since 1955. The previous bear market occurred between 2000 and 2003 lasting 29 months, with a decline of 43 per cent.

This was followed by a 57- month bull market, which rose by 135 per cent.

In the 31-month period ending in 1975, the market fell 66 per cent but, had you come out of the market during this period, you would have missed the rise of 126 per cent over the following six months.

In trying to address the global recession, central banks have substantially reduced interest rates and the Bank of England base rate is down to 1.5 per cent.

This will eventually affect rates available from bank and building society deposits which, even with inflation expected to fall, will reduce their attractiveness.

Dissatisfied savers may then start to look for alternative areas of investment, by which time the stock market recovery may be well under way and a number of the best performance days may have gone.

So what does this lead us to conclude?

In general, if you are a longterm investor, prepared to and can afford to tolerate some risk to some of your capital, the secret is to remain invested and ride out the storm.

Make time to review and rebalance your portfolio at least yearly.

For those looking to invest new capital, it may make sense to drip-feed it into the markets over, say, six to 12 months in order to average out your acquisition price as the markets rise and fall.

It remains reasonable to expect the stock market to outperform deposit-based investments over the next decade, and probably by a substantial margin, but don’t wait for the swallows of the summer to appear as you will have missed the spring.

The markets are likely to factor in the recovery well before the upturn shows in the real economy.

■ Nigel Bourke is the managing director of Stockton-based Mercury Wealth Management Ltd. To contact Mercury Wealth Management Ltd, telephone 01642-670307 or go to mercurywealth.co.uk