I had decided a while back to use this publication slot to offer some illustrative numbers to support my often stated opinion that for most investors ‘buy and hold’ is not, on its own, the most advanatageous of options, even though I have no doubt at all that attempting to ‘time the market’ is a very unwise strategy. My proposition has been for a long time that staying in the market with the right assets, well diversified, is always going to make you richer in the long run, but you can enhance your returns and reduce your risk by taking profits when valuations look stretched, and then topping up your investments after a correction is obviously set in and the bad news is well and truly ‘in the price’.
Here we are considering the systemic risks and the trend in whole equity market valautions (although I use a focused equity market to make the point), not the relative value of different assets in the portfolio mix, although the principles adapt well to trading in and out of asset classes of all sorts, not just equities and cash.
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This is one approach of contrarian investing and I have seen the merits of it for decades, although that is not to say that I am evangelical about the style – it is just a technique worth knowing about and using if you want to be just a little more advanced as an investor. Not adopting the methodology I propose will not damage portfolios that are well desingned to start with over the longer term, any more than driving a gas guzzler car will stop you reaching your destination in comfort: it is just that my suggested trading style improves efficiency and gives you more miles per gallon, or maybe Pounds per month.
I should mention that data which follows will not be easy to read on a phone and I recommend viewing on a large tablet or screen.
