Buying and selling 'the market'? It's so last decade

Someone asked this week: "When do we buy the market?" Well, sorry, but if that's what you want to know, you're doing it all wrong.

Someone asked this week: "When do we buy the market?" Well, sorry, but if that's what you want to know, you're doing it all wrong.

The only time you should be asking when to buy the market is if you are trading "the market", literally. That's to say if you are trading an exchange-traded fund that represents the market like the ASX-listed SPDR S&P/ASX 200 Fund (code STW) or maybe contracts for difference (CFD) over an ASX index or maybe one of the large listed investment companies that represent the market, such as the Australian Foundation Investment Company.

Other than that, it is unrealistic to be looking for a moment in time when you go "all in" or "all out", and if that's what you are waiting for, you are going to be waiting a long time because there are not many people brave enough to do it - to sell their whole portfolio in one decision or to put their whole retirement into the market on another.

The ordinary investor's risk appetite doesn't allow for that. The ordinary investor is too sensible, thoughtful and considered to make big decisions in small timeframes, and the net effect is that the ordinary investor is too smart for their own good, debating and delaying until they are buying at the top and selling at the bottom and only ever doing anything when it is bloody obvious, when the whole market is talking about it and when it is being announced on CNBC and by then, of course, it is too late.

From 1985 until the top of the market in 2007, we saw a long-term bull market driven by a credit (debt) boom and the ordinary investor didn't really have to worry about risk. When the market goes up 9 per cent per annum and pays a yield above 4 per cent, it is not very risky and you can procrastinate all you like. But the cost of earning 12 per cent per annum for 26 years without thought or decision is now upon us and the post-credit boom market is not predictable, low-risk and progressive. It is uncertain, risky and volatile, and it requires a whole new approach not suited to procrastination.

The post-credit boom market investor cannot afford to dither because if it is anything like the Japanese market over the past 20 years (seven bull markets averaging 58 per cent and eight bear markets averaging minus 41 per cent), you are going to have to be a little more decisive.

How decisive are you? Well, it is pretty simple to find out. The global financial crisis saw our market peak in November 2007 and bottom in March 2009. It spent just over 16 months going down. It was one of the few events in living history when an "all out" decision should have been made. So when did you sell? How constipated is your stock market decision making. If you sold before December 2007, then stop reading. If it took you until March 2008, when the market was down 26 per cent, then you are mortal. If you waited until Lehman Brothers went bust, you are going to have to change your game, and if you sold any time after that, then you just carry on doing what you are doing because without you the rest of us would not be making any money.

And if you never sold at all, then you are still living in the matrix, a fantasy world created by the financial industry that has your brain washed into thinking that you can't time the market, the stock market always goes up in the end and that the only approach is to "set and forget". You should be in term deposits ... forever.

But, of course, you won't change the market has but you won't, and after 26 years of investment success, who can blame you. But the post-boom market means a lot of long-term investors have to change, to be a little more decisive, and for those of you who will struggle with that, here's a technique for you to think about, to ease that "all in" and "all out" decision-making process.

Forget "the market" and start focusing on stocks. Buy and sell the stock market one stock at a time. Each trade an isolated skirmish. Break the big decisions down into a lot of little decisions. Buy stocks and sell stocks and the market decisions will look after themselves. Buying and selling "the market"? It is so last decade.