It has been an extraordinary year for stock markets around the world.

On the London Stock Exchange over the last year, the FSTE 100 Index has fallen from 6,397.00 to 4,277.56 points – a drop of 33 per cent. The FTSE All Share Index has fallen from 3,249.24 to 2,133.14 – a drop of 34 per cent – but it has been the smaller companies that have been affected most severely with the FTSE AIM Index having fallen from 1,036.50 to 384.27, a drop of 63 per cent.

The market has not fallen in a straight line and there have been many opportunities for people that had the courage to trade in and out of stocks. Friday, September, 19 must go down as one of the best days ever for trading on the UK stock market. The FTSE 100 rose by 431.3 points which was a massive gain of nearly 9 per cent. Through September, October and November there remained huge amounts of volatility with good opportunities to make and lose money.

The trouble started with what is now the well known term “the credit crunch”, but even when this word was first in the public domain, who would have thought that it would lead to many of the banks being in serious trouble and Northern Rock being nationalised. In October we saw £37 billion of tax payers’ money pumped into UK banks, with Royal Bank of Scotland seeing the largest share of the money and leaving the government as the company’s majority shareholder. And, as I write, it would seem that some UK banks had exposure to the fraudulent US trader Bernard Madoff which could lead to them writing off millions more. The banking crisis seems far from over.

The current situation leaves investors with a problem – when has the market reached the bottom and is it time to start investing? At the end of October I wrote that the FTSE 100 had been to 3665.20 points and this remains the lowest the FTSE 100 has been since March 2003. The Index has recovered somewhat since then and through December volatility has reduced, although this is a notoriously quiet month in the City that has historically been dominated by long lunches and Christmas parties. Many companies’ share prices look very cheap on fundamentals but it is still going to prove very difficult to predict what happens to the market in the New Year.