InvestSMART

Timing the market can help avoid the financial storms

THERE are three popular investment approaches that don't work in this market. They are the plodder (your standard 20-stock "moron portfolio" investor), the income investor and the value investor. Why don't they work? Because all of them hold on to the financial advice industry's third-most popular tenet that "you can't time the market".

THERE are three popular investment approaches that don't work in this market. They are the plodder (your standard 20-stock "moron portfolio" investor), the income investor and the value investor. Why don't they work? Because all of them hold on to the financial advice industry's third-most popular tenet that "you can't time the market".

Armed with that ignorance these three investor styles are going to go into another potential global financial crisis completely unarmed and are once again going to take it right on the nose. Because when the market starts to fall, as it is now, they are going to do nothing, they are simply going to sit there quoting the standard share market idioms that "it'll be all right in the end", that "the sharemarket always goes up" and that "you can't time the market".

But the truth is that the only people who can afford to remain invested in the equity market for a long-term trend, a trend that just might not reappear in your own personal time frame, are people that don't need the money, because they are the only ones who can afford to be patient. The rest of us, the people with mortgages, school fees, debt and underfunded retirement expectations, can't. We are at the edge of the financial envelope, we need the money and can't afford to lose 13 years of average sharemarket returns in 18 months yet again.

We cannot afford to be patient and anyone adopting a head-in-the-sand mantra who can't afford it learnt nothing from the last GFC and is not a mortal man/woman/investor.

A lot of people look back on the last GFC and say, in hindsight, that "it was obvious". Well, is it not obvious now? We have to do better than put our faith in the persistent but monumentally stupid idea that the best you can do is blindly invest in the long term with your eyes shut to the short term. Sorry, but there is no risk-free return in equities, you have to make choices and time the market or you are going to end up a victim.

In this market the call is whether you want to be in the middle of a storm clutching your future or standing on the edges watching it. Of course you should be on the edges the problem is most people don't know how to get there. You need a mechanism, something more than just plucking it out of the air.

In the Marcus Today portfolios we have a "timing" mechanism designed to protect us from a GFC-style event and both our portfolios, despite the aim of being long-term investment portfolios, are now in 100 per cent cash, including the income portfolio, bar a holding in Foster's. Every stock individually triggered what we called a "catastrophe" stop loss, a wide-set stop loss designed to protect the portfolios not from a small movement in the market but from a downtrend that looked significant enough to disturb even long-term investors.

Now I know the first thing that comes to your mind is whether this is right or wrong and doubtless some of you will email me your opinions about whether to be in or out of the market, but don't bother because it doesn't matter.

Neither you nor I know whether it is right or wrong.

But what we do know is that being systematic and having a plan has left us, in the middle of a storm, earning a positive return of about 6 per cent with not one sleepless night either before the recent market debacle began or since. On top of that we are clear-headed, unemotional and locked and loaded, ready to go when it looks right to do so, which could be tomorrow and it could be never.

Timing the market is not easy but it's not impossible and ultimately you have to try because it is, after all, the game. With that in mind we have made available at marcustoday.com.au a short guide to timing the market and some of the mechanisms used to do it.

Plodders, income investors and value investors take note, because with your approach, if the storm comes, hell's coming with it.


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