Timing the market

Thrugelmir wrote: »

Would you walk into a burning building?

I doubt it. Sometimes a degree of thought before taking a particularly course of action doesn't go amiss. Reporting season is upon us. Already some disappointing earnings numbers.

Which shares did you invest in during the Dot Com boom?

Funny you should mention those heady dot.com days. I was at the stage of life when a (very) little knowledge is a dangerous thing (now I know my limitations). I escaped without singeing an eyelash thanks to a lucky break - I was then an IT developer.

In the late 1990s I was only investing my small portfolio in individual shares (gulp). There were too many technology battles then raging to pick specific companies as winners, and the internet was still emerging. The constant in this volatile period was a demand for those people with (then scarce) dot com skills. I therefore invested in IT via recruitment companies that focused on placing such specialists.

My then OH (also in IT) put all his eggs in one basket. That basket was Microsoft.

During the dot com rise my paper gains were good; his were spectacular. Neither of us had a clue about investing principles so neither of us understood the risks. But I was a lot more cautious (and less greedy) and began getting antsy when paper gains looked far too good to be true, P/E ratios of IT companies were reaching ridiculous numbers and every new dot com was valued at stupid amounts. I couldn't reconcile the media hype with my daily work experience and sold out completely about a year before the crash. Ex-OH crowed like a rooster during that year. He refused to sell a single share.

The rest is history.

I'm not sure which of us would have been the loser/winner over the long term. Ex-OH bought MSFT at around $10. They hit around $40 and then.... crunch.... $15. They then bumped along at $19-thru-22 for about a decade. Current share price is $91. I stayed away from self-investing (dot com scared the hell out of me) for over a decade and missed the beginning of the latest bull run.

Had ex-OH invested in MSFT at the very peak (and held) his return would now be approx 127%. As he actually bought at $10 his return now would be astronomical, but he sold in 2002. He still doubled his investment but hindsight is a wonderful thing. He could have put all of his eggs in a different, risky basket and lost the lot.

The building didn't burn to the ground. Some rooms smouldered, or were smoke damaged, but they cleaned-up a treat. Some ornaments were completely destroyed but nothing of any value. Only those that had purchased a fake Picasso believing it to be an original would have had very sore fingers.

The technology sector has experienced a big rise in the last two years but it's nothing like the lead-up to the dot com bubble. Market valuations are looking unsustainable but (eyes fixed across the pond) the dow didn't crash when dot com burst. It bumped along for a couple of years, had a short, sharp correction for a year or so around 2003, and then followed a comfy upward trend until the financial crisis. It then resumed a steeper, but still comfy, upward trend until 18 months ago. Now much too steep.

So, yes, I think a correction is due but I think it will be of the (usual) short, sharp variety. It may have begun. It may be a year away. Should the OP try and guess the start/end points?

My story fits every (bad) investor cliche but it taught me the first rules of managing risk as an amateur: diversification and time in the market. Those that invested in a diversified portfolio at the end of 2007 would have recouped their big 2008 loss by 2012. Now, they would be sitting on very healthy returns.

.....and that was the worst market collapse in decades.

There's scant evidence that experts can time the market so what are the chances for we amateurs? (Answers on a postcard). I don't even try.

capital0ne wrote: »

I can never understand why anyone waits till the last few months of the tax year to invest their ISA allowance. If you've got it invest it on 6th April - works for me

If you've got it, why not subscribe £20k on April 5th, then another £20 on April 6th, and invest it all together, for a single fee?

If you've not got it, then save at a guaranteed 5% AER over the year, and invest the lot just before the end of the tax year.

Or, you approach the end of the tax year and find you haven't had to spend on emergencies, or a few other things you budgeted for, so you can invest that money instead.

Or, you're going to do a bed & ISA, but you wait until near the end of the tax year in case any unexpected cash turns up (ERNIE/Lotto/inheritance).