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The perfect time to enter

Is now the right time to invest?

June 10, 2020 | Tips

Catch the perfect moment and beat the market – the supposed dream of every investor. In practice, however, this rarely succeeds, because: nobody can look into the future and predict when exactly the markets will rise or fall again.

For experienced investors, the time of entry is irrelevant in the long term. Nevertheless, inexperienced investors in particular often wait for the “perfect” entry point. Why waiting can be expensive, however, and what experienced investors do right can be found out here.

Time is more important than timing

Waiting too long for the right time can be expensive because the best trading days usually come completely unexpectedly. Not being invested on these days means leaving a significant part of the return behind.

For example, if you had invested USD 10,000 in the S&P 500 in 1998 without missing a day, you would have quadrupled your initial investment to USD 40,000 after 20 years.

If you had only missed the 10(!) best trading days during this period, you would only have 20,000 USD in the end.

So after 20 years of investment, it was just 10 single days that made the difference between 100% and 300% return.

Another example: An investment in the MSCI Europe, fully invested from 2004-2018, yielded an annual return of 5.3%. Without the 10 best days, the return would have shrunk to a meager 0.5% per year.

In both cases, it would have been impossible to predict the 10 best trading days. More important than timing, therefore, is the fact that you are invested at all. Because tomorrow could already be one of those days that makes the difference in the long run.

Shares are superior in the long term

Over the last 100 years, equity investments have generated an annual real (less inflation) return of +5.2%. Getting the right time in the short term is speculative, as unforeseeable environmental factors of a political or economic nature, combined with people’s irrational actions, repeatedly move the entire market in an uncontrolled manner.

On the other hand, those who think long-term invest in a rising market. If you additionally exclude companies that are overvalued in bubble times from your investments, even crises can be survived much more unscathed.

Source: Guide to the Markets quarterly, J.P. Morgan

The Rendite Dreieck from the German Aktieninstitut also emphasises that long-term investments end up positive in most cases.

To find out the exact yield, select a year of purchase on the right-hand axis and link it to the year of sale on the lower axis. Do you recognize the trend? The longer you hold a share, the more likely you are to end up in the green zone and achieve a positive return. A long-term investment horizon is therefore far more important – and above all easier, for you to influence – than the perfect time to enter the market.

Quelle: Renditedreieck, Deutsches Aktieninstitut

Are you asking the right question?

The question you should ask yourself is not whether and when to invest in shares. Rather, you should ask yourself whether you will succeed in finding a solid company at an attractive price.

And that is exactly where we can help you. Our portfolio managers analyse potential companies and their competitors down to the smallest detail over a period of months until a decision is made for or against an investment.

If we decide in favour of a company, we hold on to it until there is a significant change in our investment thesis. Be it through a new strategic orientation of the company, a major change in external factors, or a too strong increase in the share price in relation to the actual value of the company. Only when we no longer consider an investment to be profitable, or we consider another company to be even more attractive, is it sold again.

Adapt the mindset of an experienced investor

If you have been waiting for the right time to enter the market, you should be aware of the following:
  • No one can consistently predict the short-term performance of the market.
  • Equities are in a long-term rising market.
  • It is not the timing that matters, but rather the choice of investments.
You can always have the misfortune of investing in falling markets in the short term. What you can do about it? Stick with it for the long term. Don’t sell after one negative year. Not even after two. Instead, buy more cheaply. Coupled with investments in high-quality companies, you will also get through bad years and be rewarded with discipline after some time.

Estably is the first digital asset management company from Liechtenstein to offer first-class wealth management from € 20,000 through a mix of technology and human investment expertise. Thanks to the portfolio managers' many years of experience in the field of value investing, above-average returns are targeted. This is intended to make professional asset management, previously available exclusively to large investors, accessible to everyone - conveniently, transparently, and profitably.

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