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Part 1: Stay or leave?

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Part 1: Stay or leave?

Trying to accurately predict a market correction successfully is virtually impossible.  As the legendary former mutual fund manager Peter Lynch said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.”

In the 92 years since 1926 and up to December 31, 2017, the US S&P500 has produced 24 negative years and 68 positive years.  In other words, the S&P500 has been producing positive returns for 74 per cent of the time and negative returns for only 26 per cent of the time.  And if we restrict the count of negative years to those episodes of 10 per cent or great declines, they amount to just 13.  That’s just 14 per cent of all periods or one in seven years.

More recently – taking a more typical investment horizon – the 38 years since 1980 has seen ‘intra-year’ declines of between 3 per cent and 49 per cent every year.  Declines are simply part and parcel of investing and once again, the market has produced a positive return in 29 of those 38 years.

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 Two caveats

We’ve demonstrated that ‘time in’ the market is clearly important but let me first remind you that if you are investing for the long-term, you must stick to ‘quality.’  By quality, I mean quite simply, in companies that have the ability to generate high returns on their incremental equity.

Tomorrow we will continue this conversation.

Here is the link to Part 2 of this article.

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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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Comments

  1. Rodger
    Does that mean, at any given time ,you will either be 100% right ,and you could be 100%wrong.
    Just a timing thing .

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