9th December 2019
Welcome to Ireland’s award-winning investment and financial planning Blog & Podcast. If you are wondering if now is the right time to invest or not, this piece might be of some value. Indeed if you are unsure if you should invest in equities now, or wait for the crash, this Blog-post hopefully will help educate and inform, a little!
Intro: Invest In Equities Now Or Wait?
Over 30 blogs-ago, in January of this year we shared Blog 97, which asked the question, ‘Invest now, or wait for the crash’!? In January 2019 we had just come through a period of significant volatility. It was officially classed as a ‘Bear market’ as certain equity markets fell by 20% or more. Many of our clients’ funds had temporary declines of 15-20% in December 2018, in line with global equity markets, and we were more than happy to see it happen. It was due, and it has fed the considerable gains since.
How many of these much cared-for and valued client called us in a panic? Zero.
How many of them remained invested fully and accepted this volatility as par for the course for a long term investor and accumulator? Every single one.
How much higher are their fund values now on 7th December 2019 than they were on 7th December 2018, not by magic but as a result of remaining invested? On average 18% .
We all know and accept that it could just as well be 18% the other direction right now, that is also par for the course. I don’t usually use golf analogies but it’s a handy way of stating that, THIS IS ALL PERFECTLY NORMAL AND EXACTLY AS WE EXPECT IT TO BE.
Timing The Market – Invest in Equities Now Or Wait?
For too long, fund managers and Wealth Managers have beat their drum about ‘out-performing’ and ‘alpha’ and ‘timing the markets’. If you hadn’t already heard most of it is smoke and mirrors, or to use a more forceful term, bullsh*t. And for years and years everyone was buying it. Now the tables have turned. Educated and informed investors see that they can achieve very very healthy returns by investing in a research and evidence-based approach.
I met with a large commercial organisation around the same time as we launched that earlier Blog in January of this year. We met to discuss potentially working together to help them invest and grow their business assets and investments over the long-term. It was 9th January that we had a discussion about the volatility that was just experienced. I made a presentation and called-out the fact that this was perfectly normal, that it may continue to decline, or that it may go up! I concluded by stating that provided their time-frame for investment was 10 years +, as it was, and they would remain invested no matter what happened, their probability of successful outcomes was statistically in the 98th percentile.
They made the decision to stick to cash and deposits instead of invest a portion of their funds. They did so as they felt the market was too high, and that the market was about to fall dramatically. Their strategy was to wait for prices to fall and then buy-in. Someone had told them that big crash was about to happen! I encouraged them to ignore any and all false prophets, either optimistic or pessimistic! I reminded them of John Galbraith’s quote (he was an economist!):
The only function of economic forecasting is to make astrology look respectable!
I did outline that they could very likely cost themselves a lot of money by sitting on their cash, that their members won’t thank them in years to come, but they were comfortable to take that risk! They made their decision and we parted as friends. I still fully respect that decision.
What is unfortunate here is, had they decided to invest, their funds would now be in the region of 15%+ right now. But that’s not the real problem as far as I am concerned. The real issue is that they will now most likely be thinking ‘should we invest now, or have we missed the boat’?? They will have to make the decision again, and they will now be making it having just seen new record highs in market valuations, and yet another double-digit growth year.
I really do empathise with them. Their members are definitely wondering why they didn’t get invested last year, and the management are under pressure now to explain that. Plus they have to now make the decision again as to whether to invest in equities now or wait. I take no pleasure in that fact, all I could and did do was my best to help them understand the realities of investing over the long term. I was reminded of a quote from the legendary mutual fund manager Peter Lynch.
– Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves
Is The Market Too High Now – Invest In Equities Now Or Wait?
If we run another scenario here, and lets assume that the snake-oil salesperson that told them the market would fall turned out to be correct, they have a 50/50 chance of being correct remember! So lets imagine that as of 7th December 2019, instead of being up 15% is actually down 15%. The media as claiming that it is the end of the world. The perfect storm of impeachments, global warming, trade-wars, Brexit and all the other stuff that sells clicks and papers, has finally hit. ‘We are in for a massive fall’ would be the media’s headlines. The public would lap it up. Joe Duffy would get a month of content from it.
Would that same investor make the decision to invest now, seeing as prices are 15% cheaper than January???? Would they hell! They, and all others sitting on the side-lines, would be paralysed. They would be fearful of investing because they are led to believe it will fall even further! Or they will be waiting for it to fall as much as the media and ‘experts’ are saying it will fall, and bag a real bargain! No way would the ‘side-liners’ make the decision to invest now. We have seen this time and time again. People waiting for the perfect time to buy and then they miss it entirely – it cannot be predicted, and it so so frequently fails to be actually done! Heck, any financial advisor that tells you they do it is not to be trusted nor believed, to be fair.
Conclusion – Invest in Equities Now Or Wait?
Let’s remove the hysteria and rubbish. Most investors like cold, hard facts. Blog 97 was the first time we shared the long term stats on positive versus negative market returns over time.
The research analysed the Standard & Poors 500 (S&P500) between 1926 and 2011, and determined what percentage of rolling periods during those 9 decades had positive returns, for various durations of investments.
Had you invested for only 1 Year – 73% of rolling periods you achieved a positive return (752 of 1021 rolling periods)
Had you invested for only 5 Years – 86% of periods gave you a positive outcome (844 of 973)
Had you invested for 10 Years – 94% of times you achieved a positive outcome (860 of 913)
15 Years – 99.7% of the time you were in positive territory (851 of 853)
Had you invested and remained invested for any 20 Year period during that time – 100% of the time you achieved positive returns. There was not a single outcome where you got back less than what you invested. Mark Twain said that history doesn’t repeat, but it often rhymes!
A patient, non-responsive long term investor has achieved annual average returns of 10%+ from being invested in a well diversified portfolio of the worlds greatest companies. That investor has not done that by timing the markets . Sure, you have Warren Buffett and a handful of other professional investors who have successfully exceeded these returns over multiple decades, but only a handful in the world. Unless you think you are the next WB, then perhaps leave timing and stock-picking to him!
At the risk of over-using quotes this week I’ll very happily leave the last word to Charlie Munger (Warren Buffet’s long-term partner in running Berkshire Hathaway $700Bn Assets & 400,000 employees globally)):
“It is remarkable how much long-term advantage people like us (him & WB) have gotten by trying to be consistently not stupid, instead of trying to be very intelligent”
Our recent unbiased review of the main Multi-Asset Funds in Ireland – quite surprising results!
A recent piece we did on how to build an investment portfolio in Ireland
The ‘Work With Us‘ page which outlines our professional service to business owners and individuals planning seriously for retirement
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