Buy and hold?

My first education in investing suggested to me that ‘buy and hold’ was the way to go. It’s nice and simple, and the suggestion was that ‘market timing is impossible’. Whilst it’s true that ‘buy and hold’ is simple, I’m not sure that it always makes loads of sense. Let’s have a look at this graph of the FTSE 100 over the past 20 years:2016-10-23-ftse-100

If you were to have invested in a tracker fund 20 yrs ago (October 1996) then you would have made a 42% gain, but it would have taken you 20 years to make that money. This would have included two market crashes, where your gains would have been completely wiped out - ouch! If you had invested all of your money in December 1999, you would not have made any money at all  - another ouch!

I am much more interested in investing my money in assets that are rising in price, and then liquidating that investment back into cash when the asset starts to fall in value, and locking in the increase in value. It makes sense for me to do this in an investment account that is tax-free to trade in (an ISA, or a SIPP), or to do it via a spread-betting account.

I need to use a very simple indicator that tells me when something is popular (so that I can buy) or becoming unpopular (so that I can sell, and return my investment to cash).

A FTSE 100 tracker fund includes companies that are doing badly as well as companies that are doing well, so this tends to make the price more ‘average’. A well-run fund that only holds quality shares should therefore have an edge over a tracker-fund.2016-10-23-smt

This graph shows the share-price of the Scottish Mortgage Investment Trust. This has evidently performed way better than the FTSE 100. When combined with an indicator that tells me whether to be in or out of the investment, this can be a pretty powerful way to benefit from the rises in price, but avoid the precipitous drops that happen to all asset classes at some time.

I have a weekly trading system that looks at five different asset classes (shares, property, gold, commodities and bonds). I use a simple timing system to decide whether to be ‘in’ or ‘out’ of each asset class. To get a taste of what I do, have a look at this video.

Because I’m a careful kind of investor, and recognise that all systems have failings. I recognise that, although intuitively my system makes sense, I might be wrong! So I also have another portfolio that does not rely on a timing system at all, but does force me to ‘sell high’ and to ‘buy low’. Furthermore, I have a contrarian trading system that I run weekly and yet another share-buying programme that I need to only action once per year!

If you want to know more, consider becoming a member of my website!


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