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Investment Strategy
Friday, August 1, 2008
Forget timing

If you are an equity investor and follow the markets quite closely you may be of the opinion that now is the time to sell. Your reasoning may be that cash has returned 10.3% over the last year and the All Share Index’s total return has been just less than that, so your thinking could be: “Why don’t I sell my equities, put the cash in the bank and wait for the dust to settle?”

According to Mark Seymour of Alphen Asset Management, “If you began your investment strategy on the 30th June 1978 with an initial capital investment of R10,000.00, at that point your Financial Planner would have ensured that you invested your discretionary capital in the equity market with the aim of achieving the highest capital return. This would have been a relatively easy decision, what with the market having rallied nicely for the previous year-and-a-half with an annualised return of 20%.”
Having gone ahead with the equity investment you may have felt it prudent to check on your portfolio every six months with the intention of switching out of equities (to cash) when the market was “under-pressure” (delivering a lower return than cash over the previous 12 months).
Howver, as Mr Seymour points out, “If you had followed such a strategy (assuming switching was done on the same day as the review, no transaction costs and no tax implications due to capital-gain-events) the differential in returns would have been significant (to say the least).”
The table and graph highlight this.

This clearly demonstrates the potential pitfalls of what may seem like a logical and careful investment strategy.
“Remember the popular investment adage,” he says: “It’s the time in the market, not timing the market that counts!!”


Copyright © Insurance Times and Investments® Vol:21.7 1st August, 2008
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