Time in the Markets NOT Timing the Markets!
When market volatility rises, people naturally start questioning their portfolio allocations and ask questions:
- Should I sell my portfolio and move to cash?
- Should I invest more money?
- Am I taking too much or too little risk?
But none of these is the question we should really be asking ourselves!
The question we should be asking ourselves is:
- How much time do I have to achieve my financial goals?
It is only human nature to worry about timing the markets when the true focus should be on time in the markets. How often have we all bought shares and a week/ month later we could have bought it cheaper, conversely, how many times have we all sold shares and then a week/month later we could have sold at a higher price.
One can’t help but think of Aesop’s fable “The Tortoise and the Hare” as a great analogy of market behaviour. The energetic, fleet-footed hare makes fun of the plodding tortoise. Challenged to a race, the hare assumes he will win by a mile. But he’s overconfident and easily distracted, even stopping for a nap.
Trying to time the market is acting like the hare, jumping in and out of the race. It’s a risky strategy aimed at outsmarting the market. But as we all know, the markets do not act in a linear, logical manner. One mistimed transaction can cost us not only our initial investment, but also the potential upside. We run the risk of sitting on the sidelines, during the best-performing markets.
With the increasingly free flow of information, much of it available instantly online, the notion of getting ahead of the herd on a trade is almost extinct. Are quick trades really going to get you to the finish line?
The tortoise, meanwhile, has his eye only on the win, not on the twists and turns of the course, nor even on his competitor. Our time in the markets should be dictated by our personal goals, not by what’s happening elsewhere in the market. If we are looking to retire in 20 years, buy a second home, pass on wealth to our loved ones, all these fluctuations are just noise. It is important to remain focused on Investax actively managed buy-and-hold strategy. This strategy — plus time— has resulted in higher gains over the long run.
Buy and hold does not mean buy and forget, though. As your goals get closer, you’ll want to rebalance your portfolio. But how you do it should be based on your needs, not the market. The more haste, the worse the speed. This is not a race to the finish. Don’t be bullied by sensational headlines or the fear of being left behind as the market rallies. At the end of the day, perseverance and focusing on your goals will take you to the finish line in stride
The legendary fund manager Peter Lynch is quoted as saying:
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
For example, based on Brewin Dolphin’s analysis of the Wealth Management Association’s (WMA’s) balanced portfolio, and working backwards over the past 20 years, it is clear that staying invested – even around deeply troublesome periods for the market – remains the best tactic over the long term.
- Missing only the best 5 days in the market in the past 20 years would have led to a 23% lower overall return.
- Missing the best 10 days would have reduced returns by a staggering 40%.
- Conversely, missing the 20 worst days would have led to double the returns of staying invested all along.
Investax, carry out due diligence on our Client’s behalf and then employ the very best active investment managers asking them to take decisions which should enhance the return that all our Clients receive over time from their portfolio. Investax, also recognise that it is all but impossible to time the market so perfectly, even with the best forecasting skills. So, we ensure any misjudgements that the investment teams make don’t jeopardise your investment objectives.
How do we apply that now?
What we can say is that large corrections, or severe bear markets, are usually associated with US recessions. And while recessions are relatively hard to foresee, we do have indicators which we use to forecast roughly when they are likely to occur. Currently, our investment manager analysis suggests that the US is relatively late in its economic cycle, but is still two or three years away from a recession. Although we expect a mid-cycle slowdown this year, it is likely that there is still time to profit ahead of any big downturn. Indeed, historical analysis shows that some of the best years to invest are just ahead of market highs.
Rest assured the experienced investment teams we employ also have a plethora of analysts constantly monitoring the market and economic data (Quilter Cheviot have informed us that 37,000 hours of research has gone into building our Client portfolios), looking to make some judgement calls to move money from one asset to another to capitalise on market sentiment, this is known in the industry as rebalancing.
This tactic has served us well over the years. Many of our investment teams have also won countless accolades from the City based on this research and asset allocation strategies.
Right now, therefore, we judge it to be far better to stay invested, and allow our investment managers to snap up undervalued shares or switch into alternative assets on a selective basis – as and when market conditions permit – to squeeze extra returns out of all of our Client portfolios.
Investax Investment Committee meet regularly with our Investment Management teams and we have one simple request that they respectively only ever buy quality! As Warren Buffett, arguably the World’s greatest investor, remarked:
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever”.
