Page 32 - DIY Investor Magazine Issue 24

‘AN INVESTOR’S MOST POWERFUL
WEAPON IS PATIENCE’*
THOUGHTS OF SALTYDOG INVESTOR PART 2
In the last few months stock markets around the world have been in free-fall, although there has been a small recovery in the last couple of weeks. Where they go from now, nobody can be sure.
Of course there are some that say they do know, but now is the time to choose your ‘expert’ media input very carefully.
By and large the financial industry promotes a ‘buy and hold’ approach where you choose your investments wisely and then hold them through good times and bad.
They maintain that successful investing is about ‘time in the market, not timing the market’; they will say that if you miss the few days during the recovery, when the markets soars, then you and your portfolio are ‘dead meat’.
However, they always fail to mention the very pleasant feeling generated by being out of the market when it tumbles, and in the last twenty-five years there have been some significant tumbles.
The largest being the dot.com crash, starting in 2000, then the Financial Crisis of 2008/9 and now the spread of corona virus.
‘THE VERY PLEASANT FEELING GENERATED BY BEING OUT OF THE MARKET WHEN IT TUMBLES’
‘THE GREATER THE MONEY BEING INVESTED INTO A SECTOR OR FUND, THE QUICKER ITS VALUE WILL RISE’
At Saltydog Investor we disagree with this strategy; we use an active momentum approach (sometimes referred to as trend investing) to choose the I.A. sectors and funds which make up our portfolios. It is important to say that we also treat cash as a sector in its own right.
The basic idea is that the greater the money being invested into a sector or fund, the quicker its value will rise; this in turn attracts more and more investors, and the greater the momentum upwards becomes. Obviously the opposite is also true, and the momentum can become downwards.
We buy into uptrends and sell out of downtrends. If
it turns out that the correction is a small one, then unfortunately we can end up selling and then buying back at an increased price. Not a clever result, but definitely better than experiencing the wealth destroying crashes that you can see in the FTSE100 graph.
In recent times we have consistently used this approach owing to the precariousness of existing world economies, and this time it paid off in spades.
Since the beginning of 2018, we have successfully navigated three relatively small market corrections, and are now well positioned to make the most of the next upturn, after this corona virus generated crash reaches its conclusion.
DIY Investor Magazine | Apr 2020 32