With the Spring Carnival at an end I thought it would be appropriate to reflect on the similarities between the hype surrounding horse racing and the investment world.
Have you ever noticed how gamblers always tell you about their big wins, but tend to keep their even bigger losses close to their chests? People who seek to time their entry and exit from financial markets are rowing the same boat.
Going awfully quiet in recent days have been the analysts who a month ago were saying that it was the time to get out of growth assets. It seemed a good call at the time as global stock markets had suffered their worst quarter in nearly three years.
The advice from many supposed expert technical analysts was that investors needed to be extremely wary of buying shares in October. The media also reminded investors that two of the biggest stock crashes in history occurred in the 10th month of the year in 1929 and 1987.
Now while further volatility may well still lay ahead, those who took that advice and bailed out of growth assets at the end of September might now be regretting their decision.
The US S&P-500 rose by nearly 11 per cent in October, its largest monthly rise since 1991. It was the same story in Australia with the S&P/ASX200 gaining 7.2 per cent, its best one-month performance since July, 2009.
These are significant upward movements and will have eased some pain for investors after the declines in equity markets in recent months, but not if you had listened to the advice of some of the “so called experts” in the financial media.
It’s not often appreciated by investors that markets are forward looking. We know the news has been bad, but it’s what comes next that counts. Selling out after a bad run in the markets just means you turn paper losses into real ones and leave yourself with the extremely difficult challenge of determining your re-entry point.
We don’t know if these October gains are sustainable, but we do know that markets can move quickly and respond to new information instantaneously. That’s why market timing is so hard.
Unlike punting on the horses you can ensure a successful long term investment experience by maintaining your chosen asset allocation and implementing periodic rebalancing, irrespective of the week to week and month to month financial noise.
Jason Fowler
, Certified Financial Planner
