Another Switchback?

Posted on 12 April 2012 by Douglas Chadwick

It is well worth looking back at the performance of the markets over the last two years. 

For instance, in 2010 the FTSE100 fell dramatically in the spring and into the summer.  Over the next six months it then recovered almost back to its starting point. A similar pattern repeated itself during 2011, but later in the year. So the question we should be asking ourselves is, are we going to see a similar performance in 2012?

A few years ago there was the expression "Sell in May and go away", and that was when the markets were far more stable than today's switchback. So bearing in mind today's present financial uncertainty in Europe and the warmongering taking place across the Middle East, I think I will not be waiting for "May to go away". Neither will I be waiting to collect £200 and pass go. Safe Haven here I come!

To me, preventing a loss is as important as making a gain. Remember the arithmetic shows that it requires more effort to recoup a loss back to your starting point - if you lose 10% on £20,000 you have £18,000, and then you need to gain 11.1% on the £18,000 to get back to the £20,000.

But looking back at the recovery that happened in both 2010 and 2011, there was an opportunity to make profit on the bounce-back in the markets. If you think back to these times then investing in Gold funds, Emerging Market funds, Gilts and Bond funds was very lucrative, if you were in the right sector at the right time. So if history repeats itself we should sit out the rough water at the beginning, and surf the gains later on. The Saltydog Portfolio intends to take advantage of this situation - it's simply a question of watching the numbers.