Once again, the equity market in the USA has given the investor sceptics, also known as “bears”, a sucker punch by racing back to all-time highs. There is a saying on the CNBC business channel that goes, “The bears make sense but the bulls make money,” and that is exactly what we have been seeing over the last five years or so. People who believe that there are companies that will provide superior returns over the longer term, notwithstanding shorter-term periods of underperformance, have seen fantastic returns in their investment portfolios. Sceptics will always find reasons not to invest, while believers will always find reasons to invest, and the latter have outperformed since the dawn of time. There is just something so powerful about rational positivity that nothing can stop it.
It is in times like these that people with all their money in cash finally cave, and want to start investing in equities. This strategy, if you want to call it a strategy, should come with some big warning signs. At the current elevated level of especially the equity market in the USA, many longer-term investors are actually taking some profit by selling some of their positions.There is, however, never a bad time to start investing because the good companies might go up another 15% before the next correction brings their prices down by a small percentage.
Currently, the best strategy will be to do some additional research and identify those companies or sectors of the market where the performance has been irrational and avoid investing in those; and rather contribute to those parts of the market that still maintain some measure of rationality although the shares have gone up a lot. This is much more difficult than investing when everything has fallen a lot due to some unforeseen disaster, but that is the curse on those bears who have not believed in the power of the market over time.
The message for investors who have watched their invested neighbours become wealthier and wealthier, while the purchasing power of their own cash investments have been going down, is not to lose heart. You have to start investing today, but keep it small and keep it constant. Some weeks you will buy high and some weeks you will buy low, but over time you will do better than you will do by staying in cash. The one critically important thing is to keep your expectations low. You are investing into a market that has performed very well, and you are joining the party when others are already going home, but you will do well over the next five,ten or fifteen years if you keep at it. The party will start again, perhaps after some bad hangovers, but then you will be one of the early participants.