Time in the market V Timing the market
There has been a significant increase, of late, in the number of industry experts espousing the benefits of ‘time in the market’, with claims that investors are better off than if they had tried to ‘time ‘the market’ over the past 12 to 18 months. What always strikes me as interesting is that many in the Financial Planning industry believe ‘timing the market’ is about picking exact tops and bottoms, but this is probably the most perpetuated myth in the financial planning and managed fund industry.
The reason why most of us hear the words ‘buy and hold’ or ‘it is time’ in the market that yields returns is because the industry cannot or does not want to time the market. Consequently investors are cautioned about the perils of market timing and have to be content with ‘average’ returns at best. However, the reality is that market timers exit near market peaks using stop losses to protect capital as part of sound risk management, and enter near market troughs to capitalise on the inevitable rally that occurs.
This strategy not only reduces portfolio risk, it increases returns both of which benefit the investor. Let me say that anyone following a buy and hold or ‘time in the market’ strategy over the next two to three years will be disappointed with their portfolio returns. Times have changed and so must investors thinking if they want results.
So what can we expect from the market?
In my last report I indicated that it was still too early to tell if the low of 3201.5 set on 21 November may actually be the bottom on our market and this is still the case. To confirm the bottom we need to see the All Ordinaries Index rise strongly, however, over the past week it has literally traded within the same range of the past few weeks.
Whilst this is not what I was expecting, the positive news is that the volatility in the market is settling, therefore I believe the pendulum may be swinging for the market outlook to be more bullish than bearish. If this is correct, we should see the market rise up from here into late January and possibly early February before we see another move down. Once again, and without wanting to sound like a broken record, I would caution all investors to wait until the market proves it is rising before buying.
Dale Gillham
Chief Analyst
Wealth Within
Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’, has assisted thousands of traders and investors to become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment advice to traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.
For more information please visit www.wealthwithin.com.au
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