In this part of our series, SMSFs for Newbies, we're talking about timing. We've done the "what" to buy bit, we're now onto "when".
The first thing you will work out about timing stocks or the market is that, despite your best efforts, most of the finance industry won't help you. For a number of reasons.
The first is that it is in their interests to persuade you that "timing" the market or your stocks can't be done because the moment you accept that then your financial professional doesn't have to even attempt it, and let me tell you, it's a lot easier taking your fees and doing nothing for a living than it is trying to beat the market.
Amusingly they will even try to sell you the benefit of their inaction as a deliberate attempt to "minimise dealing costs". Yeah, right.
The second reason they want you to believe timing can't be achieved is that unless they are a hedge fund on "two and twenty" (2 per cent management fee plus 20 per cent of any profits), they don't earn a heck of a lot more doing it. There is little extra incentive for a lot of effort.
The third reason is that if you accept that they are not able to add value then you are accepting that they are not responsible when your fund goes wrong. On that basis underperformance is never their fault, it's the market's fault. No timing responsibility, no responsibility. Perfect.
So when met with someone like yourself who wants to do more than buy and hold, who wants to time the market, you will find that some financial professionals immediately start persuading you that they can't because no one can.
But just as the good fund managers who do consistently outperform the market will tell you that they can time the market, anyone telling you that you can't has either failed at it already or doesn't even want to try. So move on.
It is probably worth mentioning at this point that while value-based Warren Buffett-style investors also appear to agree with the "timing" difficulties by declaring that investment is about buying businesses not trading share prices, what they fail to make clear is that while they decry trading off charts, value investing is all about timing as well, about finding a share price (they call it a company) that is trading above or below intrinsic value and buying it or selling.
So they are using value to judge the right "time" to buy a stock rather than a chart, but it's still timing. Did Warren Buffett buy a stake in Goldman Sachs at the top of the market in 2007, or at the bottom of the market in 2008? Sorry, but he is the biggest timer of all time, a good one too, even if it is not obvious.
So before you hand back your SMSF because you think it's all about charts, it's not. There is more than one way to time a stock.
Having taken all that on board, your first decision is to either find people in the broking, funds management, financial planning or accounting industry who will care about your performance, or to take on the responsibility yourself. I'd do a bit of both; two brains are better than one.
How do you spot someone who will add value? We often ask in the office, if you were a civilian in the wilderness and out of broking, who on the desk would you want to talk to? For me it would be anybody who puts an effort into stock selection and timing, into "what" and "when" with a dual emphasis on getting out of stocks at the right time as well as getting in.
When so many in the industry hide from the responsibility yet charge the same fees, I know who I would prefer to be paying: someone who gets up in the morning worrying about stocks and worrying about how their clients perform. Not somebody who wakes up wondering how many more clients they can sign up.
How do you spot the good ones? Simple. Ask them what they last bought and how it went. They'll either enthusiastically tell you about their last success or they'll fluff their way out of it.
If they do answer, you'll know immediately whether they are going to be any use to you by whether their enthusiastic answer is, "Yes, I bought the yen yesterday afternoon and have made $350 already" or "I picked out Flight Centre as being undervalued in 2009 and am still holding it". Take your pick.
More on timing your SMSF stock picks next week.