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.
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.
Are you asking the right question?
The question you should ask yourself should not be whether and when you should invest in stocks. Rather, you should ask yourself whether you can find a solid company at an attractive price.
And this is exactly where we can help you. Our portfolio managers analyse potential companies and their competitors for months down to the last detail until a decision for or against investment is made.
If we decide on a company, we keep it until our investment thesis changes significantly. This may be due to a new strategic orientation of the company, a major change in external factors or an excessive rise 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 when we consider another company to be even more attractive, is it sold again.
The fact that we are not only very good at finding solid companies at attractive prices, in theory, is currently confirmed not only by the independent Benchmark Test III of Fuchsbriefe Verlag but also by the real-money performance tests of brokervergleich.de and geldanlage-digital.de.
Adapt the mindset of an experienced investor
If you have been waiting for the right time to start, you will be aware of the following:
- No one can constantly predict the short-term development of the market,
- Shares are in a rising market in the long term,
- it is not the timing that matters, but rather the selection of investments.
You can always have the misfortune to invest in falling markets at short notice. What can you do about it? Stick with it in the long term. Do not sell after a negative year. Not even after two. Instead, buy at a lower price. Coupled with investments in high-quality companies, you will also survive bad years and will be rewarded with discipline after a while.
Estably is the first Liechtenstein-based digital asset management firm to offer world-class asset management through a blend of technology and human investment expertise. Thanks to the portfolio managers’ many years of experience in the field of value investing, the aim is to achieve above-average returns – starting at an investment sum of € 20,000. The aim is to make professional asset management, which was previously possible exclusively for major investors, accessible to everyone – in a convenient, transparent and profitable way.
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