Why Super And Growth Assets Like Shares Really Are Long-Term Investments

By Shane Oliver

There's more information on the link, however the below is pertinent on timing

But why not try and time short-term market moves?

The temptation to do this is immense. With the benefit of hindsight many swings in markets like the tech boom and bust and the GFC look inevitable and hence forecastable and so it’s natural to think “why not give it a go?” by switching between say cash and shares within your super to anticipate market moves. Fair enough if you have a process and put the effort in. But without a tried and tested market timing process, trying to time the market is difficult. A good way to demonstrate this is with a comparison of returns if an investor is fully invested in shares versus missing out on the best (or worst) days. The next chart shows that if you were fully invested in Australian shares from January 1995, you would have returned 9.7% pa (with dividends but not allowing for franking credits, tax and fees).



Source: Bloomberg, AMP Capital

If by trying to time the market you avoided the 10 worst days (yellow bars), you would have boosted your return to 12.4% pa.

And if you avoided the 40 worst days, it would have been boosted to 17.3% pa!

But this is very hard, and many investors only get out after the bad returns have occurred, just in time to miss some of the best days. For example, if by trying to time the market you miss the 10 best days (blue bars), the return falls to 7.6% pa. If you miss the 40 best days, it drops to just 3.6% pa.

The following chart shows the difficulties of short-term timing in another way. It shows the cumulative return of two portfolios.

• A fixed balanced mix of 70 per cent Australian equities, 25 per cent bonds and five per cent cash;
• A “switching portfolio” which starts off with the above but moves 100 per cent into cash after any negative calendar year in the balanced portfolio and doesn’t move back until after the balanced portfolio has a calendar year of positive returns. We have assumed a two-month lag.

Source: Global Financial Data, AMP Capital
Over the long run the switching portfolio produces an average return of 8.8% pa versus 10.2% pa for the balanced mix. From a $100 investment in 1928 the switching portfolio would have grown to $218,040 compared to $705,497 for the constant mix.

 

WTF Happened In 1971?

 

I learnt to tie my shoelaces

 

What was the conclusion?!

 

Who has the guts to sell up when everything is flying, especially older folk in a super fund? Then coming back in when the market has been smashed....like 2 weeks ago. I look at my situation, If I had sold off my shares in January before the virus hit and then bought back in 2 weeks ago I would be sitting on easy street but I don't think many people would take that approach. It is too risky IMO.

 

Hopefully it won't take 49 years to find out not that it'll bother me by then.

 

The logarithmic scale of that graph really ruins the effect. I understand why it’s used, but the difference in outcomes is really lost.

 

I sold all my shares a month before the GFC and again I sold 30% of them two weeks before this crash. It takes a lot of self discipline to take money off the table at record highs and even more discipline to buy back during a crash. The mistake I made after the GFC was I stayed out of the market too long and missed a fair chunk of the recovery bounce. I'm not going to make the same mistake this time and have started dollar cost averaging back in and will continue to do so over the next few months. I am way more nervous at record highs than I am during a crash. My day job is in trading (nothing to do with shares) so I think the mentality to sell high and buy low is wired in. It has it's advantages but it's also hard to stick to a long term wealth creation strategy when you have that trading mindset. But it has saved me a lot of pain on more than a few occasions.

Willy

 

A good single knot would suffice unless they were thin shoelaces.

 

You saying it isn't going to crash even further this year?

 

No-one's got that crystal ball but the likelihood of another large correction is low. It's definitely better to buy into the corrected market even if it drops again, than to have bought 1 month ago at the highs.

The consideration will be the impact which will be had on dividends until markets reestablish.

 

That’s the amazing thing with the sharemarket - it consists of so many different views. I fear the market has a long way to go down. I see the All Ords testing 4000 as the bad economic news hasn’t started yet.

But I learnt long time ago that being confident on predicting the sharemarket in uncertain times is way beyond me....

 

Low, high, steady. Any or all. So what?

The attention span of a gnat brigade will do what they do.

Others have a defined plan and adhere to it.

 

Those that don't like the rollercoaster often jump early and lock-in their losses (from the highs), those that hesistated the longest lock-in bigger losses and quite possibly well below their entry prices. Others, paralysed by inaction may ride it out.

 

Or others keep buying.

An old quote from somewhere regarding investing in share market:

Short term 10 years;
Medium term 40 years;
Long term your entire life.

 

it is very important to to buy something right also, what are the suggestions? Is there a Berkshire in Australia which is also run on some principles and not just typical management taking shareholders for a ride?

 

Fits me as well. I've just been at it longer

Such an open question. How long is a piece of string?

Get yourself a humongous cup of coffee with eternal refills and start reading the LIC threads, Exchange Traded Funds threads, short-termism ASX threads, World Index threads, Superannuation threads and go from there. By the time you are finished you will have a beard touching the floor - presuming you are of that gender.

As for Berk-in-the-Shire much as I have respect for Warren Buffet and Charlie Munger personally I wouldn't put one red cent in it.

 

The above maybe over 20 years old now ,but it worth every now and again to read books like as it give a different idea to what's happening in the media..As 9 months in a Bear up and down market no one knows with peerless accuracy just how low is low..

 

Thanks a lot for the pointer I am new to this forum, Would look at these threads. I would appreciate understanding why you wont put money in berkshire, I think its probably better then most etf's that you would buy even after reading so much. I could imagine that would be sensible if you were buying the stocks directly