We love to buy. We hate to sell. Here’s why.
As part of our Vistafolio Wealth Management Service, we are passionate about helping our Eligible and Wholesale clients gain access to the global markets. From Australia to Britain to America, we are always looking for the best opportunities to buy into. Property, pharmaceuticals, mining, technology — you name it, we’ve got our eye on it.
Our ultimate goal? To invest and hold for a 3-to-5-year time horizon. This is how we maximise our ability to capture value, growth, and income.
We follow this formula religiously because it is exactly what Warren Buffett preaches — being sensible, being patient, and committing to the long game.
But is this approach too rigid? Too traditional? Too boring?
Buying and selling at the wrong time
Well, some people have suggested to us that we ought to loosen up a little. Maybe learn to live a little more dangerously. Embrace our wild side.
- For example, if we sense the market might be falling, why not sell stocks quickly before they drop?
- Likewise, if we sense the market might be rising, why not buy stocks quickly before they surge?
These are reasonable enough questions. After all, in any marketplace, buying and selling should be expected, isn’t it? Maybe even encouraged?
But here’s the problem with constant buying and selling: traders have a history of mistiming the market. And the consequences of getting it wrong can be horrible.
Here’s the most recent example.
On November 9, pharmaceutical giant Pfizer announced that its Covid-19 vaccine under Phase 3 trial had displayed up to 90% effectiveness. It was a sudden and unexpected development — which led to short sellers reportedly losing over US$5.5 billion in a matter of days.
I can already hear you gasp in disbelief. ‘What?! How on earth could these people lose so much money? Isn’t a vaccine announcement good news?’
Well, yes. A vaccine announcement is good news for the world. No question about it.
But here’s the catch: these traders were betting on certain fearful segments of the market — travel and tourism stocks, in particular —to show continued downside. And, usually, this would be the case, given the continued anxiety about Covid.
But November 9 was a game changer. Fear suddenly turned to hope. And the downside quickly became upside, and these traders were caught completely flat-footed. They lost big when the market experienced a mammoth rotation out of growth stocks into value stocks.
Meanwhile, our Vistafolio clients may have been in the right place at the right time. They experienced some good growth on November 9. This was because we had committed ourselves to buying into the market and holding for the long-term.
Our approach was completely validated — especially when we saw one of our favourite property stocks surge almost 20% in a single day.
It was, in a word, breathtaking.
You cannot time the market
Let’s face it. We live in an age of instant gratification. We tend to be swayed by impulse and reaction. That’s why buying and holding for the long-term seems so unfashionable and boring. And yet, deep down in our heart of hearts, we know it’s the right thing to do.
It’s exactly what our grandparents taught us: discipline and patience is the ticket to achieving your dreams.
And, hey, let’s not forget the historical evidence for it:
Recently, Fidelity measured an imaginary sum of US$10,000. What would happen if you had invested that money into the S&P 500 Index in 1980? How would it grow if you just didn’t touch it for 40 years?
Well, the final result is staggering. That $10,000 would have blossomed into $952,512. That’s an increase of over 9000%. Pretty dang impressive.
But here’s what’s incredibly sobering: if you had messed around with the money and missed just 10 of the best days on the investment calendar, your income would have been cut by over half. You would have received only $425,369 instead.
Uh-huh. That’s right, you would have lost almost 55% of your financial gains.
The numbers certainly don’t lie. Staying committed is the ideal way to achieving long-term prosperity. The best wisdom is often the most obvious!
Analyst, Wealth Morning