In hindsight, looking at a chart of a company’s share price, it would be perfectly easy to make money any day of the week, by buying at the bottom and selling at the top.
In practice, it is not easy at all.
It is often the opposite that occurs, with the result that buyers enter near the top of the market, and when the market falls, they decide they don’t want to lose any more money, and they sell out, often near the bottom of that dip. These times are often recognisable because everyone has a stock market tip for you in a topping market, and again at the bottom when all and sundry have decided that they can’t bear it anymore and will put their money in the bank. They have realised a loss, which is difficult to recover.
Our investment team constantly researches markets and companies, before recommending a purchase. We are looking for solid companies, with good management, good cash flow, a solid performance history, preferably a franked dividend, and something where we see some value so far as price is concerned. Fair value of a company sometimes equates to its current share price but may be much more or less than the current market price. We don’t buy if we consider a company over-priced, but we like the underpriced gems that sometimes show up.
At The Investment Collective, we like to utilize a ‘buy and hold’ strategy, populated by the companies where we see value. We may wait to purchase a stock if we think the market price is a bit high compared with what we see as its fair value, and we may also add to an out of favour stock, again, because we see value. We don’t try to find the bottom to buy, and we also don’t try to find the top at which to sell or reduce. Sometimes we are lucky and a trade is executed on one of these days, but our investment philosophy is to hold assets for the long term.
We don’t think that it’s possible to time the market such that our trades are executed exactly at one of the extremes of price, because the movement of the market in the future can’t be known until after the event. Our philosophy is to buy at close to fair value and to hold onto that company for as long as it continues to meet our investment criteria, time in the market. If it fails this test, then it’s out.
Our focus in choosing our investments is not based so much on the present, but on what the company can deliver to us as investors in the future. This means that it may take some time for a company to begin to deliver a very positive impact in a portfolio, again, time in the market.
Investing requires patience and some courage to remain invested if the current market isn’t so rosy. Time in the market – we don’t try to time it.
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.