With the JSE All Share reaching 60 127 this morning (29/08/2018), it is valuable to revisit some basic principles that make for successful long-term investment strategies.
Indeed, it is easy to forget that in April this year the JSE All Share dropped to 54 602 (4/4/2018). This fact highlights the inherent futility of trying to time the market.
I have mentioned this in previous articles “Staying Invested Vs Timing Markets”. In short, it is always better to stick to well thought out investment strategies and to avoid emotional reactions to negative market movements.
The graph below is a powerful illustration of why time in the market is more important than trying to time the market! (click on the graph to enlarge)
I have mentioned on this blog before that timing the market can be costly “Why Timing the Market Can Be Very Costly” and why it is better to stay invested rather than trying to time the markets “Staying Invested Vs Timing the Markets”.
In this Moneyweb article, Patrick Cairns argues that cash can be the riskiest asset of all because one needs to be exposed to higher growth assets such as equities and listed property in order to produce inflation beating returns “Why Cash Can Be the Riskiest Asset of All”.
Cryptocurrencies like Bitcoin and Etherium (see article “Demystifying Virtual Currencies”) have generated a great deal of interest because of their spectacular gains (and losses). Investors are trying to determine if cryptocurrencies are an investment opportunity, a bubble or the end of money as we know it. In his considered and detailed report Brandon Zietsman, CEO of PortfolioMetrix, argues that when investing in cryptocurrencies one needs to be clear-headed about the risks (a view with which I concur). Click here to read the article.
(An argument for sitting tight when the news is bad…)
While it is true that no one has a crystal ball for financial markets, there is some interesting research available that shows what has happened in the past during difficult times. Arguably, this research illustrates the point that often, the smartest thing to do is to wait! (click on the graph to enlarge)
Why stay invested?
With the Gupta-leaks revelations sending confidence to new lows and the battle within the ANC before the December conference continuing to dominate headlines, it is easy to imagine that political events ultimately drive stock market returns, however, the graphs below show that it is not political events but ultimately earnings that drive long term returns. (click on the graph to enlarge)