"I'm only rich because I know when I'm wrong. I basically have survived by recognising my mistakes" (George Soros)
Quarter 3 is over and as we head into the Quarter 4 - historically when markets perform best. With the exceptions of a small pull back in tech (after a great run this year) and the Dax, the gains continued during the month of September, raw data being:
Dow Jones +1.9% +7.0%
Nasdaq -0.8% +16.6%
FTSE +1.0% -2.3%
Nikkei +5.5% +6.0%
SSE +3.5% -14.7%
Dax -1.0% -5.2%
And on the currencies, the USD remains strong with the following movements....
GBP -0.6% +1.9%
EUR 0.0% +3.3%
JPY +2.7% +1.0%
AUD -0.5% +8.1%
CNY +0.6% +5.6%
So as they say in this part of the world, all a bit "Same Same". The US markets continue to do well, UK and Europe lagging behind and whilst understandably China picked up in September, 2018 has not been a good year for their markets...though perhaps presents some good buying opportunities.
Robust economic growth and upbeat corporate earnings in the US means the outlook remains positive.
Picking good companies and holding for the long term is an important part of successful investing. The greatest investor of all time, Warren Buffet is the epitome of this. His famous quotes such as "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" and "it's time in the markets not timing" reflect his philosophy.
Whilst no one can argue that this works each person's circumstances are different. People may require income over capital growth, Warren's focus is on the latter. An individual's tax status needs to be considered - what works best in some jurisdictions may not work as well in others.
There's also those who look at trends, cycles and swear by this method of investing, so all about timing rather than time in. Choosing to buy a stock / fund / sector is only half of the equation for many, the other half is choosing when to sell (and then have an alternative option for those monies). Selling at profit is easy, its selling at a loss which is much more difficult. If you wouldn't buy a company today, why own it today? Being brave enough admit you are wrong and sell at a loss is difficult but will ultimately lead to having more success.
A passive approach to investing in the S&P 500 has historically yielded 10% per annum over the long term, through a mix of bull and bear markets. Yet the last quarter from 1 October to 31 December has shown average gain of 7.5% since World War 2. So three quarters of the gains are made in just one quarter of the time. Also in 82% of years where Quarter 3 was positive (which is was again this year), the fourth quarter has shown a positive return. History does have a habit of repeating itself and markets are emotional places so who is to say the same will not happen this year...the odds are in your favour.
A passive approach such as buying the S&P is a simple but effective way to obtain growth. However that growth can be increased with the right mix. Sometimes it is all about time in but sometimes its also about timing.
We all know that stocks can go down as well as up and those who favour the cyclical philosophy may argue that we are due an adjustment. Having other assets in non stock market correlated areas is also important, as is having managers who recognise opportunities away from long only equity.
Whilst no one can doubt Mr Buffet's credentials, not everyone has the time and certainly very few people have the means to make his philosophy work every time for them. Having your own target and finding a way to reach that through the right asset allocation is the key.....