Timing isn’t everything

Daniel Liddicott
Jan 2024  •  6 min read

Timing isn’t everything

Despite a relatively rocky 2023, according to data provided by Timeline, global stock markets produced returns of around 15% for investors for the calendar year, attributed largely to a positive surge in performance over the last few months.

Consequentially, the end of 2023 saw UK investors flock back towards investing in equities as a reaction to their strong performance to end the year. As explained by the Calastone Fund Flow Index (FFI), this followed six months of a vast number of investors selling from equity funds between May and October 2023. Despite this, £449m was invested back into equity funds in November 2023.1

Investors who decided to put their money back into equities at that time essentially chose to buy shares at a higher price than was available throughout the majority of 2023. This got me thinking – is there any other scenario in which people would be happier to purchase something when its price is potentially at its highest? So far, I have not been able to come up with anything! I mean, you wouldn’t wait to buy toilet roll until the price goes up, would you?

For the casual investor, the news and media are the main drivers behind deciding whether or not to invest in equities, painting extreme pictures of negativity and “never before seen” tanking of the market as a whole that will surely never recover – (SPOILER ALERT) even if this is not the truth. Whilst past market performance is no guarantee of future results, historically recovery has always followed periods of poor returns for equities. In reality, aside from taking information from the news, it would take a great deal of time, effort and resources to research market trends, to find and invest in equities that you believe are about to rise in value and help you to attempt to beat the market. This is where active fund managers come in.

SPIVA are a Standard & Poors (S&P) agency who monitor the performance of active funds and their managers against the major global stock markets. According to their data, only 7.81% of active fund managers in the United States were able to beat the market (S&P 500) over the last 15-years*. This trend can be seen for all regions that SPIVA gather data on, including Europe and the UK. Whilst the outlook for active fund managers improves over a one-year period (rising to 39.10% of managers beating the market in the US), consistent replication of these results is apparently impossible for the overwhelming majority. And these fund managers are afforded the time, effort and resources that I alluded to earlier, whilst still achieving poor results for those who invest in their funds.

The Timeline portfolios that the majority of our clients are invested in are called tracker funds. These essentially track the major global stock markets, aiming to achieve as close to market returns as possible with the aim of beating inflation, rather than beating the market itself. If you can’t beat them, join them! After all, we are trying to ensure that your money maintains the same purchasing power for decades in the future, to which inflation is the primary threat. The UK’s main stock market index, the FTSE 100, averaged an annual return of 7.3% from 1993 to 2023, with the average annual growth of inflation sitting at only 2.1% over the same period2. The FTSE 100 provided average annual returns that more than tripled the growth of inflation. We believe that equities are the asset of choice when it comes to beating inflation over a long period of time.

If you have met with Dominic or myself in the recent past, you may have heard us refer to the importance of “time in” the market rather than “timing” the market. Leaving funds invested in equities for a prolonged period of time, which we would normally define as at least five years, affords your investments the time to recover from the inevitable, periodic falls that are certain to happen. It’s our job to help you “stay in your seat”, stick to your financial plan and remind you that these phases will come and go, just as they always have. Warren Buffett, often considered the most successful investor of all time, once said: “Wall Street makes its money on activity. You make your money on inactivity… it’s just not necessary to do extraordinary things to get extraordinary results.”

*Figures correct as at 18/01/2024

1 Equity funds gather £449m inflows after six months of net selling (investmentweek.co.uk)

2 How to invest to beat inflation – Times Money Mentor (thetimes.co.uk)

SPIVA | S&P Dow Jones Indices (spglobal.com)

Timing isn’t everything2024-02-01T09:20:30+00:00

THE PERFECT MARKET TIMING?

TODAY’S BLOG

THE PERFECT MARKET TIMING?

We all know that Brexit has caused great division and frustration, whichever side of the “argument” that you are on. It has resulted in many people delaying decisions, attempting to time the market right. Many people are putting off large purchases until there is greater clarity about the future.

This is true too of many investors. One of the great benefits of a democracy is that we can have access to information about markets. However, this is invariably used very poorly. Investors (professional and “amateur”) attempt to invest during the ideal period and of course sell their investment at an equally ideal time. This strategy may work on occasion but is impossible to repeat in any sustainable way.

Let us look at the US experience. Why? Because the US market is about 54% of the global stock market by value. It is a mature market and a well-regulated one. JP Morgan have produced a great graphic about the flows or money in and out of funds. The blue spikes represent money moving into investments (above the line) and out of them (below). These are net inflows (or outflows).

JPMorgan research Market Timing US

The market falls, investors run

They (JP Morgan) then overlaid the US S&P 500 index. The result is startling. As markets fell, investors bailed out. Most money was taken out of funds at the bottom of market “crashes”. Most investments tend to be made at the market peaks. Investors are quite literally doing the opposite of what they have been told. They buy high and sell low. They know that they shouldn’t do this, but they cannot help themselves because of fear about the future.

Here is the newsflash. When markets crash, the media is full of disaster stories, this invokes a sense of dread and fear, which investors take as a call to get out of the market, sell, sell, sell… Once the crash is over investors return, usually once most of the gains have already been achieved.

A fantastic way to ruin

I can think of few better ways to reduce your wealth and increase the likelihood of self-imposed poverty. Yet this approach will happen this year and the next and probably for the rest of our lifetimes.

Your future is way too important to muck around trying to be an investment genius. The investment geniuses aren’t even able to consistently achieve outperformance. Many end up simply taking bigger bets and gambling with higher sums – just ask investors how happy they are with the genius of Mr Woodford about their holdings now.

It does not have to be like this!

It does not have to be like this. You can accept the reality that in life some things you simply cannot control. The markets and the returns from them cannot be controlled by you (or me). We simply must embrace reality, look to the real data and plan appropriately. We help you take the market return from the assets you invest in. Cost effectively. We take a long-term view. I mean decades long, because that is how long your money will remain invested, providing a lifetime of income to you and those you hold dear.

Don’t play the fools game. Get over the illusion of perfection and stop procrastinating. Now is the time, always. Get in touch to get yourself on track.

Call me on 020 8542 8084 or email me.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

THE PERFECT MARKET TIMING?2023-12-01T12:17:20+00:00

SHREDDED

SHREDDED

I wonder if you have seen the video of the moment that a Banksy piece was shredded as soon as it was sold. There has been speculation about whether this was simply a stunt or a genuine attempt to expose the folly of the art world. It does not matter, nothing will change. The world we live in is obsessed by fame and will spend vast sums to share in its light. It is always something of a mystery that so many will be taken in by so few.

The financial services world is no different. Obsessing over performance that happened and marketing investment gurus or fund manager as stars. Fund Managers are actually given stars by ratings agencies. Those same agencies that told us all that day was night when it came to “creditworthiness” before the credit crunch.

Drawn to Success

Time has moved on, memories fade. Promises of lessons to be learned have come and gone. We are still lured by the glisten of success. Little has changed to investor behaviour. It is about as bad as it has always been. We may have some new terms or names for it, may even be able to spot it a mile off, but few are willing or able to adopt behaviours that are actually successful.

To be a successful investor you have to take a long-term view. You ought to hold a high proportion of your portfolio in a globally diversified portfolio of equities, bought as inexpensively as possible and held, ideally within a wrapper that enables you to choose how and when you draw money to suit both your circumstances and taxation. That is pretty much it…

You can attempt to beat the market, through selecting specific stocks/shares but remember that this has at least two key decisions – when to buy and when to sell. Few people achieve this with any repeatable success. They will tell you that they do, but the truth is rather different. Conveniently forgetting their losses which make up their averaged net returns.

There will always be someone willing to forecast precisely what will happen in the future. In a planet of over 7 billion people, there are plenty of them. Many will promote their views as alternative or counter-narrative, pandering to your sense of doom, or throw so much money and impressive glossy statistics at marketing a theory that you come to believe that they really are onto something different. Occasionally they will be right for a time.

Unvarnished Truths 

Here are some truths. If you plan to withdraw money within the short-term, bank it, do not invest it. If you wish to build the value of your money so that you have a shot at financial independence, invest. Invest cheaply, invest long-term, invest heavily in equities, invest globally. Invest with an understanding of taxes. If you want to give yourself a good dose of anxiety, look at your portfolio on a regular basis. If you want to enjoy life, don’t – but have a plan and make sure that someone is monitoring yours.

Normal and Ordinary Perfection 

Remember that market corrections are normal, crashes are normal, booms are normal. We do not know when and mostly do not know why. You cannot control the markets, it is impossible to time investments perfectly in a repeatable way. The same cannot be said for Banksy, who timed his (or her) shredding of “Girl With Balloon” to perfection, shredding it… whether the value has depreciated or in fact appreciated is a debatable point and only time will tell…

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

SHREDDED2023-12-01T12:17:46+00:00

The Broccoli and Pizza Portfolio

I think its accurate to say that to date everything that has appeared in the blog has been written by me. It is probably well past the time someone else put something here. So, here is a piece by Jim Parker, the Vice President of Dimensional.

For some of us, it’s hard to give up on the idea that investment should be exciting. Picking stocks can be fun, after all, and there’s nothing like getting your timing right and bragging about it later with friends.

Jim ParkerFor all the accumulated wisdom about asset allocation and understanding risk, and about diversification and discipline, some people seem bound to see investment as an end in itself rather than as a means to an end.

For these folks, picking stocks is a hobby. They follow the gurus and soak up the financial media. Despite evidence to the contrary, they’re convinced they can build a consistently winning strategy from exploiting perceived mistakes in market prices.

Part of the reason for this is the natural human tendency toward over-confidence. For instance, we all like to think of ourselves as above-average drivers, when that’s simply not possible. Likewise in investment, many of us believe we have powers of foresight not evident in the wider population.

A Duke University study of corporate executives, published in 2010, found a dismal record of prediction from a group you might have thought would do well. Indeed, of 11,600 forecasts of the S&P 500 index over nine years, the survey found executives’ estimates of future returns and actual outcomes were negatively correlated. (This is a technical way of saying the executives were hopeless forecasters).1

Research also suggests this tendency to trade a lot and make confident forecasts about stocks has a gender bias. Whether it’s a testosterone-driven instinct among men to big-note or something else, study after study shows the male of the species finds it harder to accept that they are unlikely to “beat” the market.2

For these red meat eaters, an investment approach that advocates working with the market, diversifying around risks related to an expected return, trading efficiently, exercising discipline and watching fees and taxes is going to sound like the financial equivalent of a broccoli and walnut salad – healthy but boring.

Surely the point of investment is to try hard and, Don Quixote-like, to charge at those market windmills? Are we not men?

There are a couple of ways of confronting this mindset. One is to hope for a change in human nature and convince each would-be master of the universe to separate his urge for ego gratification from his need to build wealth patiently and efficiently.

This is not impossible, of course. But one suspects it would take some time and would require an awful lot of face saving.

A second approach is to separate the investment nest-egg from the play money. If someone really wants to speculate on the market, they can be allowed to do that on the proviso that their long-term retirement money be invested the boring way.

This way the investor can buy some (expensive) entertainment and accumulate a few war stories to share at his next golf game without compromising the asset allocation painstakingly designed for him and his family.

It’s understandable that for some people investing is a kind of a hobby. After all, this is what keeps much of the financial services industry and media in business.

But in separating the concepts of speculation and investment, you can still enjoy the odd treat while ensuring a balanced diet overall.

Call it the broccoli and pizza portfolio.

Jim Parker:  Vice President Dimensional


1. Ben-David, Graham and Harvey, ‘Managerial Miscalibration’, Duke University, July 2010

2. Barber and Odean, ‘Boys Will be Boys: Gender, Overconfidence and Common Stock Investment’, Berkeley, 2001

The Broccoli and Pizza Portfolio2025-02-03T14:48:49+00:00

What We Believe About Investing

I’m working on the new website which will hopefully go live at www.solomonsifa.co.uk tomorrow. I was working on trying to describe our investment process and what we believe about investing,  then came up with this (which is not our investment process) but thought it may be of interest. I’d welcome feedback, I’m very tempted to put it as a page within our new look site.

What We Believe About Investing

  • Long-term investment in equities and equity-like investments should provide a better chance of beating inflation over the long-term than cash, for which there is considerable historical evidence.
  • Cash is an important asset class and one that provides necessary reserves for living and unforeseen events. Everyone should therefore have some cash.
  • Inflation is a vital element in determining real returns.
  • It is not possible to consistently beat the market.
  • New investments are made with a time-frame of a minimum of 5 years.
  • Existing portfolios need to be carefully reviewed in light of target dates.
  • The future is unknown and that markets and investors behave erratically.
  • It is very unwise to borrow money in order to invest it and we do not advise it.
  • Nothing is guaranteed in real life, investment is risky.
  • It is possible to lose all your money.
  • Markets will go down, they will also go up.
  • Investing should not be entertainment.
  • If something sounds too good to be true it probably is.
  • If you don’t understand the investment, don’t invest.
  • There is little point in paying investment managers to outperform the market if they fail to do so consistently.
  • Part of our role is to minimize the cost of investing, not the entire role.
  • Tax should not the primary reason for investing.
  • It is very difficult, if not impossible to “time the market”.
  • Money is something to serve us, not the other way around.
  • There are very few successful DIY investors, but far more “how to” finance authors.
  • Investing is often emotional, successful investing is not, it is a disciplined process.
  • Compound interest is a lovely theory, but returns are not fixed, it remains theoretical.
  • You can only control the things you can control; you cannot control the market (legally).
  • Be prepared for disappointment, but remember that good things happen too.
  • Diversification reduces risk and returns, which is appropriate for most investors.
  • Sadly, you cannot have a high return without risk.
  • There is no such thing as the best investment, just a suitable one.
  • Insider trading is illegal, but being observant is not.
  • For any business to continue it must make a profit.
  • Historic performance data tells you what might have happened, not what did happen; actual performance is what you get because of what you did.
  • However harsh, tough or burdensome the regulation, there will always be crooks.
  • You cannot spend a %, you can only spend money.
  • The market is a place where people agree a price for disagreeing about the value of something in the future. Remember that it is a place for buyers and sellers.
  • If everyone else is doing something, that is not a good enough reason for you to do it too.
  • When your friends, colleagues or family offer financial advice, make sure that they are willing to be sued if it transpires that it isn’t legal, compliant or simply wrong.
  • You will not be the next Warren Buffett; even he struggles to be Warren Buffett each year.
  • You are wasting your time if you are looking for the next Apple or Microsoft.
  • A great investment strategy is worthless unless you implement it.
  • There is an awful lot more to life than “keeping up with the markets”, the media reports what has happened and speculates what might happen. If you think about it, this is remarkably like a trip to a fortune teller. If you throw enough out there some of it sticks.
  • Capitalism, by its very nature will morph into something that the market wants.
  • Insurance is something you need when you don’t have capital, it is a “replacement cost” if you do.
  • A bad investment experience should be used as a learning opportunity.
  • Don’t forget the investing lessons you have already learned.
  • As others have said, constantly repeating the same behaviour whilst expecting different results is a form of insanity.
  • Experts disagree.
What We Believe About Investing2025-02-04T11:08:13+00:00
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