As markets fall once again on the back of indecision on the Greece problem, one might be forgiven for starting to get a little exasperated. The commonly accepted outcome of the French and Greek elections is a rejection of the austerity that has been imposed on the eurozone. One might say the same about our recent council elections.
From personal observation it would seem that whilst austerity makes sense, the way that governments are set up makes it impossible to carry out. It is quite apparent a term of 5 years is nowhere near long enough to complete the task, and that is the longest any government is going to last while attempting to carry it out. Undoubtedly one of the failures of democracy is that the intentions of long term government must be inherently fickle.
Aside from political musings, however, we must decide what to do with our money.
This exasperation that will no doubt be emerging as we head back to the recent doldrums of August 2011 could well cause many to lose faith in equities full stop. Maybe it is time to quit equities and choose some slow and steady fixed income investments until the tide turns?
On paper, market timing offers a seductive prospect: By predicting market direction ahead of time, a trader might capture only the best-performing days and avoid the worst.
The depiction below tells the other side of that story. Large gains may come in quick, unpredictable surges. A trader who misinterprets events may leave the market at the wrong time. Missing only a small fraction of days—especially the best days—can defeat a timer’s strategy.
As we can see, over a twenty-five-year period (1986-2010), missing the best twenty-five trading days would have cut FTSE All-Share Index annualised compound return from 10.18% to 4.75%.
Trying to forecast which days or weeks will yield good or bad returns is a guessing game that can prove costly for investors.
We don’t chase the markets, we are proponents of long term discipline for these very reasons. We would be more than happy to discuss what we can do for you.