Learn how to tackle the market
IT IS impossible to accurately predict what is going to happen to the market in the short term. What is more important, though, is to understand that investing in the market holds risks, but over an extended time frame should reap returns that beat inflation.
Investors need to decide whether they are investing for:
- Long-term growth;
- To generate income;
- A combination of both the above.
Unfortunately, as so often happens, many investors panicked when markets fell in August. Whilst markets could have gone lower, I believe those investors who sold are not long-term investors and they don't fully understand why they invested in the stock market in the first place.
Markets are well above the highs of mid-August and this supports the popular theory that the market turmoil was indeed a buying opportunity.
The real secret to investing in equities is to buy when markets fall. Even if it means that you bought possibly too soon, due to the markets falling even lower, always remember that no one is going to alert you to the best possible time to buy.
There are a number of shares which "came off" during the period and which have still not recovered to their highs of the last 12 months.
Every time the market corrects, we should learn something. So what can we learn from this last experience?
Too often we are so preoccupied with the future and spend time worrying about what is going to happen next, that we miss some obvious lessons from the past.
To quote a famous philosopher: "Those who cannot remember the past are condemned to repeat it."
A few points for the future:
- Never sell in a panic - no one steps forward and admits to selling at the bottom. If you have done so, vow that you will never do it again.
- Leveraging is dangerous - borrowing money to buy shares is a no-no.
- There will always be volatility in the market - if you missed out, don't worry because you will get another chance.
- The adage of "buy and hold" is old generation. You need to evaluate the changes within companies such as their management, earnings, cash flow and strategy going forward. Some companies are past their sell-by date and those equities should be switched into companies that have adapted to the changing times.
- Over the last 25 years, markets have regularly experienced volatility and yet the index over this period reflects a 14.5% compound return - far greater than the inflation rate over this period.
- It's also a given that world events affect markets both on the upside and downside but, whenever the situation has looked more positive, it has led to better buying opportunities.
There are still some challenges facing world markets, none more important than strong global leadership, helping create jobs and growing economies. However, remember the famous cliché - "buy low, sell high" and "don't try to catch a falling knife".
Sit tight - even if it has to be for the next 18 months.
- Bryan Hirsch is a financial advisor. Email bryan@bhca.co.za, web.www.bhca.co.za
LeparaThePresident
When markets falls its a best time to practice short selling.Report Abuse
LeparaThePresident
Bryan Hirch, how much do you have in your account. You cannot advice me when i am having R20m in my account you do not have more than i have. Logic does not allow that.Report Abuse