Friday, 8 November 2013

Timing the market

This is my second blog looking at investment performance and how this is seen as a given by clients.

I can quote every statistic under the sun about market timing and how hard it is to do. I want to give two examples.

I have indicated in previous blogs that I have purchased Lloyd's shares. I have noticed a pattern to the share price. It hits say 60p and then drops down for around a month to say 55p and then fluctuates before going back into the sixty territory before moving upwards. It has done this all the way through its rise from around 20p.

If I was good I would sell at what I see as the high and then buy back in at the low. If I had done this I would have made a fortune......until of course the time came when the share pattern changed.

We build portfolios for clients and we re-balance once a year on 1 July. I can tell you what the portfolios do every month. I know the best months tend to be in the first and last quarters. The middle two quarters tend to be flat. I am sure I could analyse a specific point when it would be the best time to invest, but that is only right until the pattern changes.

My point in all of this is, there are some people who claim they can perfectly time the market and choose the right investments. In reality these people are few and far between.

In my last blog I indicated that the markets were reaching fair value. Most people wait for the markets to recover before investing, this is not a bad thing but they tend to be disappointed because they expect the same returns as were being delivered during the recovery phase and that just won't happen. I can't say for certainty that our portfolios won't deliver 10% plus next year but I am sure at some point they will return to a more normalised return.

Timing the market is a fools game, all statistics demonstrate that the longer clients remain out of the market the more money they will lose.

In summary investment performance is a given, this means understanding the market is an essential part of the package and good communication should enable clients to rest easy during market wobbles because ultimately they buy into the long term picture. Trying to work out when to jump in is a fools game, and unless we are geniuses one to avoid.

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