Wealth Within - All Ords Report 26 August 2008
With the significant pull backs in the market of late, the managed funds have commenced their old clichés’ of ‘time in the market’ rather than ‘timing the market’ in an attempt to allay investor’s fears. The issue I have with this is that ‘time in the market’ is probably the most perpetuated myth in the industry. The reason why we hear the words ‘buy and hold’ or it is ‘time in the market that yields returns’ is because the industry cannot time the market. The funds are simply too large to manoeuvre with any speed. Consequently, the public is cautioned through advertising slogans about the perils of marketing timing.
Many in the industry claim that ‘market timers’ sell when a market is low and are out of the market when the inevitable rally occurs. They assert that market timers’ run the risk of being out of the market at the trough of a decline when sentiment is at it most negative and potential returns are at their greatest. To substantiate this argument they suggest that if you are out of the market on the 20 biggest days that the market is rising over a 10 year period, your return will fall substantially. However, the inverse of this argument is that if you are out of the market on the 20 biggest days that the market is falling, it stands to reason that your returns would surpass the market average over any 10 year period. After all, markets don’t crash up, they crash down.
I talk more about this in my book 'How To Beat The Managed Funds By 20%', as well other common myths in the market. Interestingly, many people today continue to make mistakes when managing their portfolio as a result of these myths.
So what can we expect in the market?
Over the past month the All Ordinaries Index has continued to display signs of indecision, and this week is no different. It is almost as if the market is in a holding pattern until reporting season is over given that the market has opened and closed within a 100 point range in each of the past four weeks.
Something has to give as the market cannot stand still. The institutions have accumulated $100’s of millions of dollars over the past year and they are waiting for the opportunity to enter the market. Once they do, it is highly likely that the market will rise. Before you get too excited, however, it is still possible that the market could fall to my next price target of 4300 points. For the market to indicate it is starting the next bull-run, it needs to hold above 4829 points in the short term and rise to above 5111points over the next few weeks.
Research by AMP Capital history shows that following any major pull back, the average growth the following year is 32% plus. Given this, I urge you right now to sit tight as you will be rewarded for your patience.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst