Economy,  Life,  Stock Market

When to Invest in this Current Market?

Reading Time: 3 Minutes

What’s up people!

Hope we are all having a well deserved Easter break.

It’s the 4-day Long Weekend here in Oz, and I for one NEED it.

Now I think it’s safe to say that most people have been caught up in the stock market rollercoaster recently.

Certainly our superannuation (a kind of 401k to my American friends), has taken a whopper of a hit.

But currently, there seems to be a bit of normality which has resumed.

Indeed, the US stock market has been fairly bullish since it’s lows in late-March.

So is now a good time to invest?

Is It?

Um, let me just get out the bi-no-cu-lars out.

Sigh, they just don’t make movies like they used to eh.

Anyhow, the answer to this question is…

Yes… and No.

I know, I know – a complete load of codswallop from The Frugal Samurai.

But let me explain…

Wait, wait, before we dive in, first some background…

Background

One thing which has really surprised me in the last few weeks is the speed of the market decline and rise.

My opinion is that this was a result of two sectors of the market.

  1. The algorithmic and passive traders. Or in other words, the machines who make up 60% of total market volume. Coupled them with the passive indexers who constantly have to rebalance their index composition means that they are huge proponents of momentum swings.
  2. Panicked baby boomers and (near) retirees. Imagine it is January 2020. You are 65 years old and just hung up your work boots after a SOLID 45 year stint in the workforce. You breathe a sigh of relief as you look at your current portfolio (excluding own home) – a million or so in shares, with another few hundred thousand in super… also in shares. Then fast-forward a few weeks… that million is now worth $650k, and those few hundred k’s have been reduced by a couple. Oh and there is an unseen enemy deliberately targeting your age group. You’d be shitting yourself.

And what about the rises?

  1. The algorithmic and passive traders. Or in other words, the machines who make up 60% of total market volume. Coupled them with the passive indices who constantly have to rebalance their index composition means that they are huge proponents of momentum swings.
  2. First-time market entrants. I am a member of quite a few investing and trading groups on social media. During March, most days the entire feed would be someone posting on whether the market has bottomed, or asking for opinions on what to buy if you had $10k. The replies were usually posted by people of similar age – young un’s. Unfortunately, the sum total of our experience is what, one GFC? Some not even that. But you get enough buying, you can raise a market.

Of course, amongst all of the action were the professional investors, traders and institutions – but they try to make money in any market.

So Why Yes?

Because there is no right process or wrong analysis in investing.

The number one rule of making money is to make money.

You can have a “gut feel”, or you can research ten hours a day – it means diddly squat if you buy high, sell low.

In markets – a key aspect which is often neglected is time horizon.

I’ll give a personal example – I am bullish on the Australian banks.

But does that mean the Australian banks are a good investment now? No.

With low interest rates, bad debts to rise, dividends being scrapped and increased regulation – why would anyone consider the banks?

Because interest rates won’t stay low forever, bad debts won’t rise forever, dividends won’t be scrapped forever, regulation… is here to stay.

The key question is, when?

And to me, that’s the second biggest consideration.

Your time horizon.

Here’s the returns you could have had in the Australian All Ords Index throughout history.

On any given day, you might as well toss a coin, but hold anything for 10+ years you’re on a winner baby!

Why investment time horizons matter - Anthony Doyle | Livewire

So… are you a day trader? A Buffet-devotee with a multi-year approach? Or a set-and-forget passive indexer?

No one really asks themselves this question when they first start.

If I was an indexer, getting in at these levels with a multi-decade time horizon is a no brainer.

If I was a Buffet-devotee, I’d probably jump into the highest quality stocks, with nil debt… or wait to see if they go further “on sale”.

If I was a day-trader, I’d be jumping up and down with glee at the volatility on offer.

So Why No?

Apart from the obvious issue if you jump into a trade and can’t get out without taking a hit, I think at times like this we need to revisit history for some guidance on what happens during severe market-downturns.

I used the US market as a guide given the Aussie market traditionally follows the US lead.

Bear Market History: The 10 Biggest S&P 500 Pullbacks

You can see that historically, the duration for a bear market from peak to trough lasts much longer than a month or two (apart from in ’87).

Which is why there are some commentators who believe that the market still has a ways to fall yet, here’s another chart on that point:

Place Your Bets « Blackthorn

What to Do TheFrugalSamurai?

Hm, hard one actually.

I think during times like these don’t keep your finger pressed on the trigger until you’re empty.

Take a nibble here and there, you’ll be investing at historically decent levels with dry powder ready and waiting for any pullbacks if they eventuate – yet still participate in the gains if the market continues tracking up.

And remember, markets never move in a straight line, they zig then they zag, then they zag some more before finally zigging all the way to the bank.

Here’s another chart on the All Ords to reinforce this point!

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P.S. As always, all thoughts are my opinions only – do your own research please!

4 Comments

  • J&P

    I enjoyed reading your article. It is so hard to decide when to invest and pull the trigger during a time like this. I think your approach of investing a little bit here and there right now due to all of the uncertainty is right on target for the average investor.

  • Lunch

    Hey Frugal Samarai, thanks for the post. Good read. I have decided that I have no idea what the markets are going to do. I am just going to DCA every 2 weeks for the next 6 weeks. Have already been doing this for 6 weeks. Then resume my normal monthly share purchases. Hopefully this works out 😀

    • The Frugal Samurai

      Join the club, I don’t think anyone has an idea as to what markets will do to be honest. Those who claim they do… well, I can smell the BS from here! Haha, I think you’ve timed your DCA pretty nicely if you started 6 weeks ago, sitting on a handy gain surely?

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