“Should I buy or sell?” is a question that we hear all the time. Our answer? “Probably not.”
Many investors like to analyze the market and predict the direction that the market will go in next. Our goal is to analyze various companies to find the ones with the best revenue models and then buy them at a fair price.
We are not interested in letting go of any promising investments, even if their share prices happen to fall on a particular day.
Timing the market is like tossing a coin: one day the market will soar, the next it will come tumbling down. In the short term, the stock market will always behave randomly.
A single tweet can wipe out hundreds of billions in stock value in a flash.
We don’t believe that we could ever hope to beat the odds if we based our approach on a coin toss.
It would be far too tempting to sell off your shares during a downturn and then plan on buying them back once the market begins to pick up steam.
In practice, this is both difficult and tremendously expensive.
For example, the market decline caused by COVID-19 was surprisingly rapid. In just a few weeks, the American S&P 500 fell more than 30%. This was followed by an almost as rapid rise that few could predict.
Can you afford missing the 20 best days?
Between 2004 and 2018, the S&P 500 index grew by 7.7% on average every year. Within that 15-year timespan, an initial investment of 10,000 dollars would have grown three-plus-fold to a whopping 30,711 dollars.
According to Putnam Investments, if an investor had missed out on the ten best market boom days during those fifteen years, their average annualized return would have been under 3%, and the final value of their investment would have been a paltry 15,481 dollars.
If an investor missed the 20 best days, their 10,000 dollars would have increased by a scant 42 dollars, in which case the practical value of their investment would have decreased.
Not being in the market is an expensive gamble.
Betting on share prices benefits stock brokers and exchanges, as their livelihood depends on the fees they charge for trades.
It´s easy to exit but difficult to enter
Many professionals will attempt to sell their services by predicting where the stock market will go next.
It is perfectly understandable that investors want to leave the market when bad news takes over the media. In many cases, investors´ advisors also support this.
However, it is good to remember that leaving the market is easy, but knowing when to return back is very difficult. Often that’s when both investors and professionals are late and lose the best upswings.
In addition, trading generates unnecessary costs, which then decreases investor returns. That is why we believe in long-term investing and why we are fully invested in the quality businesses in all market conditions.
We are not speculators; we are owners.
CEO, Sifter Capital Oy