When should you calm down your investment?
I get two questions from my clients when it comes to investments at the moment. Either “What can I buy/switch to get the returns everyone is talking about” or “I hope you’re going to tell me when to sell down.”
The general consensus is the stock market is ‘over valued’ but there isn’t a unanimous consensus that it’s about to tank. For over 5 years it has been rising like a feather (with a strong undercurrent) with a few wobbles. We all know – it can sink like a stone in days or weeks. The right time to buy was probably early 2008, but you had to have steel you-know-whats to be that contrarian. When the world and it’s brother, your neighbour, his dog and mother-in-law are all piling into the market – like now – guess what? It might be time to take the profit off the table.
Why is the All share steaming ahead when the economy isn’t. Logically one would think that until earnings get back to the glory days pre-2007, then the stockmarket should lag, but that isn’t the case.
The big boys in our stockmarket – the Anglos, Billitons, SAB, Richemond, MTN etc are heavily invested outside of SA, so their shares are going to mirror the global economy – not the South African one. The global market continues to recover, and the low interest rates in the West will keep money pouring into stocks. Maybe we can hang onto those coat tails a while longer. Maybe it’ll keep us sailing along until the economy catches up.
So sell? Buy? Hold? The most important questions to ask is whether the investment is short/medium or long term( over 8 years), what percentage it is of your overall net worth and whether you have the time to allow an investment to recover a significant loss of capital. If you’re coming into retirement and not going to be accumulating more funds – perhaps it’s time to lock in that profit and hedge the downside. If you’ve got 20 years to retirement and don’t need the capital for at least 8 years then maybe not.
I am going to repeat something I have said before in my blogs… The bulls win, the bears win, it’s the pigs that lose.
Author Dawn Ridler