The Market is never wrong, it is what it is.

Posted on 1 October 2015 by Douglas Chadwick

I cannot understand the so called professional financial pundits who say you cannot better the market, so do not try. I recently read a report from one of our major Banks. It said as follows “If you are investing in equities, which historically produce higher returns, your money needs to be invested for a minimum of five years to ride out short –term fluctuations. This timescale is a minimum: ideally, you should be looking at an investment period of 10 to 15 years. That way, any big falls are likely to be balanced out by the gains. Perhaps those gains will be greater than the falls” This sort of statement makes my blood boil. “Perhaps the gain may be greater than the fall!” If it is not, then you lose, but of course the Bank with its charges wins whichever way the cookie crumbles. It is also blindingly obvious that the more years you spend building your pension fund, then the longer dividends and the power of compound interest has time to contribute. You are making profit on your profits. It is not surprising that Fund Managers will advocate that you should stick with their funds through the thick and thin of stock market fluctuations. Naturally, they do not want to see the volume of money in their funds falling as it will affect their remuneration and also gives them problems in keeping their portfolio`s balanced. In times of market volatility, different sectors are affected differently. Some may even go up whilst others are falling. The manager of a fund in a failing sector is not allowed to diversify away from his own sector and has to stay invested. Under these circumstances the best manager in the world may lose you money. You, however, as an independent and informed investor can switch horses from a failing sector to a winning sector or even in extreme conditions go into cash. (Cash is a perfectly sensible sector.) The Saltydog Investor gives you all the information to make these decisions and even runs a demonstration portfolio that shows its ability to avoid the market falls and corrections. As an investor it is important to become familiar with the arena in which you are operating. There have been more than 100 market corrections in the last 110 years - that is around one per year, and more than 30 bear markets during that time. The corrections average about a year from top to bottom and back, whereas a bear market may fall by 25% or more and last a year and a half before reaching the bottom and turning. These numbers are reflecting the performance of the American market, but are still relevant as the rest of the world generally follows their example. If this is the investing world in which we live, I can see no logical reason for doing as the Bank suggests and just standing and taking the losses on the chin whilst going nowhere. I am going to take action as and when I deem it to be necessary. I of course will have the Saltydog numbers to assist my decision making which puts me in front of the next guy!