This is the reality equity investors face.
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Add in the risks of trade wars, geopolitical tensions, climate change, sky high valuations in parts of the market i made big money the threat of a pandemic and you can understand why some investors are questioning whether the risks are skewed to the downside.
Looking forward to and beyond, how do you position for such a challenging investment environment? This article provides some key learnings from over years investing in equity markets. It addresses the perils of market timing, key considerations for investors and how to maximise your long-term returns. In the end, time in the market is what counts. The chart below highlights some of the most difficult periods for me as an investor.
When you are in the moment, the risks you are facing seem insurmountable. But the chart also provides what is increasingly becoming i made big money unique perspective — a long-term view. Source: Factset When you put the fears and uncertainties of the past into perspective over a longer time horizon, they are generally overstated.
The market recovers. And patient, long-term investors have been rewarded. But what if you could time the market and avoid the 10 worst performing days in the market over the past 30 years? The results are impressive. So, market timing works, right? Well unfortunately it gets a lot more complex when you analyse the data. Because not only do you have to avoid the worst days.
You must also stay invested during the best performing days.
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Market timing can be very lucrative… but also very costly to long-term returns. Source: Firetrail Research, Factset To make matters even more challenging, the most efficient way to make money biggest daily gains in the equity market are closely followed or preceded by the biggest daily losses.
Large gains and losses tend to cluster. The increased volatility during i made big money periods increases risk to the upside and the downside. Getting it wrong by a month One month can make all the difference. The chart below highlights all the major market downturns during the past years, including the event and the duration. Source: Firetrail Research, Factset What is clear from the data is that if you could time the market, avoiding the 17 largest equities market drawdowns over the past 25 years would have added significant value to your investments.
However, could you have predicted the catalysts and the timing to perfection? The statistical chance of getting every market timing call right to the day is about one billion to one. The odds are not in your favour. Being wrong by just one month eg.
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If you picked the GFC, you would have outperformed. But consider this. All your friends, family, and clients have been impacted. The biggest upswing the market has i made big money in the last years was straight after the worst downturn.
And it happened within 8 months. Part of the challenge is getting back into the market quickly enough, often very quickly after your decision to sell into cash not to mention the trading costs associated with this strategy. How do you know the right time to make the move? This makes market timing very difficult, if not practically impossible.
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If he does win, what will the subsequent direction of the share market be? But at the time, this i bitcoin cash chart big money was consistent with polling and betting markets which gave Clinton a 5 to 1 probability of becoming the next US President.
The answer to the second question i made big money even further from the truth. As i made big money probability of Trump winning increased in the lead up to the election, equity markets started to fall. The first chart below highlights what happened when Trump was announced as US president in November More recently in Q4inflation had reared its head and the risks of global trade wars escalated further.
However, on the back of no new news, the market direction changed on 23 December As the second chart below shows, investors who moved into cash, had to move back into equities swiftly in order to capture the subsequent gains. Source: Factset The lesson for investors, is that market timing is a high risk, low return strategy.
Making the decision to move from equities into cash is one of the most difficult decisions an investor can make. One key question you can ask yourself during times of increased volatility, uncertainty, complexity and ambiguity is am I an investor or a trader?
They are cognisant of short-term risks, but position for the long-term opportunity. Often overreacts to headlines. Incorrectly extrapolating information into the future. Whether you view yourself as an investor or a trader can have a material impact on your decision-making. In my view, investors have a distinct advantage in equity markets given their longer time horizon. Volatility, fear and uncertainty can create opportunities to buy companies at a material discount to their i made big money value.
Taking this approach in the short-term may be i made big money. Well, the typical Aussie homeowner must be in the top decile. Why are they such effective investors?
Time and patience. The average holding period for an Aussie homeowner is over 7 years approximately years for units and years for homes.
It's a very nice blend of finance and psychology -- the field formally known as behavioral finance. Since the first edition of the book was published inI was concerned that the content might be dated. What I forgot was that the way humans think and behave doesn't change in a few decades.
Taking a binary and turbo options view of 7-years or more can significantly increase your chance of investing success.
And over any rolling 7-year period, house prices have always appreciated. Over the same rolling period, the Australian equity market has never delivered a negative return.
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Including during the GFC! And as the chart below highlights, active management has also delivered when you take a longer-term view. Taking a 7-year view can significantly improve your chances of investment success.
Whilst today the debate regarding active vs passive management has hit fever pitch levels, over the long-term active managers have delivered. And when comparing active managers across the universe, a highly active, concentrated approach works best. Conclusion: Is now the time to go to cash? Volatility, uncertainty, complexity and ambiguity. These are the conditions investors face today. Risks are elevated.
But when I look across the equity market, so are the opportunities. Positioning for this kind of environment is challenging. The big money is made in the waiting. For patient, long-term investors, there are always opportunities to add value. Any opinions or forecasts reflect the judgment and assumptions of Firetrail and its representatives on the basis of information at the date of publication and may later change without notice.
Any projections contained in this article are estimates only and may not be realised in the future. The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment.
This communication is for general information only. Any persons relying on this information should obtain professional advice relevant to their particular circumstances, needs and investment objectives. Past performance is not a reliable indicator of future performance. Firetrail believes the information contained in this communication is reliable, however its accuracy, reliability or completeness is not guaranteed and persons relying on this information do so at their own risk.
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Subject to any liability which cannot be excluded under i made big money relevant laws, Firetrail disclaims all liability to any person relying on the information contained in this communication in respect of any loss or damage including consequential loss or damagehowever caused, which may be suffered or arise directly or indirectly in respect of such information.