With local markets lurking in the doldrums for a considerable period now, it is no surprise that investors are becoming discouraged. Understandably, many are questioning the wisdom of persisting with their current investment strategies.
So how should one best react?
Firstly, it helps to take into consideration the general and historic trajectory of local markets. We recently had a period of extraordinary growth. Bull markets do not last forever and every bull market is followed by a bear market.
We are in that territory now.
But does that mean one should sell everything now?
In our view, no. No one can time the market. Also, selling low means that you are locking in losses and likely to miss out on the recovery (read previous article “Timing the Market”).
We understand that a bear market can cause strong emotional reactions of panic and fear…but the best response to such periods of uncertainty is to do nothing. While this is difficult, it is undoubtedly the savviest move (or non-move) that you can make. Indeed, the exact length of a bear market cannot be determined, but a bull market will follow!
Historically, bear markets have been shorter than bull markets
Notably, from the 1930’s bear markets have lasted an average of 18 months – which is shorter than the average for bull markets. This should provide some encouragement.
Do not try to time the market
Research shows that trying to time the market more often than not leads to worse returns. A consistent investment strategy typically beats everything else (click here for previous blog article “Hurry up and Wait!”).
Looking ahead, it is a good time to be reminded of the quote by Kerry Balenthiran:
“You make most of your money in a bear market, you just don’t realise it at the time.”
Source: Sygnia Asset Management (Pty) Ltd