Experts

Investment is no longer long-term

"With most markets up over 15% year-to-date (YTD), is it time to take profits?” As I write this in the middle of February, you might think this a daft question. It is, but also it is not.

Date: Feb 10, 2012          Author: Stewart Aldcroft

Keywords: ETFs, Equities

"With most markets up over 15% year-to-date (YTD), is it time to take profits?” As I write this in the middle of February, you might think this a daft question. It is, but also it is not.

After an extended period of dire economic news, some of which refuses to go away however much the associated politicians would like to bury it, it is a reasonable question to ask: “Should I take profits now?”

Most readers will know, this column is not supposed to provide accurate or timely investment advice. Indeed, the writer is not an investment manager, so quite clearly what follows is not designed to constitute an “offer for sale” or anything other than an opinion based on the current market conditions, and observations of typical behaviour of investors in the Asian markets over many years.

With most global stock markets experiencing daily movements of over 2% or 3% from time to time, it is quite clear that high volatility is still the key issue worrying investors. It seems that for many of the less experienced, a form of investment paralysis has set in, where they do nothing, either to buy or sell assets invested in securities, mutual funds or ETFs. This is hardly surprising, as few professionals have seen this sort of volatility in their lifetimes either.

Thus, despite the fact that after the first few weeks of 2012 we are looking at a positive YTD returns from most investments of +15% or more, it is also clear that many investors have not actually enjoyed these returns, as cash still remains a very high proportion of most portfolios. Where people have been invested, the YTD returns are merely a recovery of what had been lost in the previous 12 to 24 months.

Is this the time to ask whether we should take the profits and remain in cash for the rest of the year? 

Actually, this should always be one of the first questions asked when considering investment, but it doesn’t have to be the action taken.

The traditional “buy now and accumulate for the long term” no longer has the validity of previous times. There is much opportunity to make money by proactive trading, but unfortunately mutual funds are not designed to accommodate this.

Clearly this is where ETFs can be useful. Whether in global markets, or just in the region, ETFs provide both access and liquidity very cheaply, enabling the savvy investor to make money during both good and bad times.

Would I sell after making 15%+? Maybe. But would I know when to buy back as well? That’s then a function of the markets.   

Please Note: Views and opinions expressed in this article reflect the views and opinions of the author only and are not necessarily shared by Citi. The views and opinions expressed are not intended as, and should not be taken as, advice or inducement to buy, sell or otherwise trade any securities.

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