Tuesday, February 06, 2007

Is Now the Right Time to be Buying Shares?

This from the Bloomsbury in the UK, but it follows a theme that is very relevant in Australia as the ASX moved into record territory again this morning:

Is now a good time to commit funds to my long term investment portfolio, given that stock markets have had such a good run recently and some commentators suggest bad times are on the way?

The simple answer is that we don’t know if it is – and we suggest that nobody else does either...

As William Bernstein put it:
"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor - the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
... our approach is that provided you invest in accordance with your risk capacity and that you hold a diversified portfolio which is aligned with your objectives, there is no reason to expect that trying to predict market turning points will be an effective tactic.

Our view is reinforced by some research carried out by committed active management house Fidelity in 2005, so perhaps we should leave the last word to them...
Fidelity looked at the effects of investing in five major equity markets over a 35-year period to 31st December 2005 on the best, worst and a randomly selected day in each year. The impact for such a long term investor of getting it right (or wrong) was minimal – as Fidelity says, “… investors…do not need to be timing experts to benefit from stockmarket investment.”