Hi all,
Nigel, thanks for your "informed" opinion...
"but my view is that you need to take a 3-5year view (as you would with any managed fund investing in Australian equities) so that you can get a true picture."
perhaps a little reality on the situation I have extracted from the Travis Morien webpage
http://www.travismorien.com/FAQ/main.htm
"A rather common piece of advice given is that anyone investing in the stock markets should consider a five year investment term for very good returns. In fact, it is argued, a five year investment time frame is a good cure for almost all risk in share investing, such a medium term time frame is all you need in order to make good on any bad purchase decisions, such as buying at the peak of a bull market and then suffering the effects of a crash. Five years is a nice number for investment advisors to use as it is considered suitably long term for most people, yet doesn't involve tying up your money for decades. It provides a nice cozy assurance that your investment will always pay off, it is just a matter of a little time.
Looking at the return of the All Ordinaries Index from the period of March 1950 to December 1999 (taken from Sensible Share Investing by Austin Donnelly, pg. 34) it can be seen that a five year investment horizon is not actually any guarantee of success in the market (let alone a single stock, which can be infinitely more volatile).
Over one year periods the All Ords has returned between 80.3% and -45.4%. Extending the time frame to five years the best result was an impressive 367% gain, or 36.1% compound, however the worst result was 14.5% per annum falls (a drop of 54% in the value of a portfolio over the course of five years). The best result over ten years was 22.7% a year compounded, but the worst was a 3.4% PA loss, meaning that over ten years an investment would have returned a loss of 29.2%. This is depressing, because ten years is ultra ultra long term in the eyes of many people, to still be losing so much money is intolerable. Over 15 years it was still possible to be 0.9% PA behind (a 12.6% loss).
In the last 50 years there have been no 20 year time frames when an investment portfolio was in the red, and the best 20 year result was 13.1%PA. Over 30 years the long term returns of the market become more apparent, the very best return over 30 years was a 9.7% compounded gain. In this study 15 years was about the longest time to be still showing a loss, however if the study had gone back to the crash of 29 the results would have been even more disturbing. The Dow Jones Industrials took more than 25 years to bounce back from the great crash. Could another super-crash like 1929 still happen? In theory, yes it could, many say actually that this is inevitable due to the massive gains that have ignited the market in the last couple of decades, we are looking at capital gains not seen since... the 1920s.
Now that we have all of the doomsaying over and done with, note the return of the 30 year investment being "only" 9.7%. An interesting phenomenon in market pricing that has significant application in contrarian investment is known as the regression to the mean. In his book Against the Gods - the remarkable story of risk, Peter Bernstein shows that overall the vast majority of mutual funds have a very similar return. Comparing different five year periods where the market made overall similar returns it was shown that the best mutual fund strategies in one five year period were often the worst in another, and vice versa. Some funds had very good years while others had bad years, then they swapped, but very few funds ever consistently did better than the pack.
The same thing is noticed in individual stocks, a few shares really outperform the market but most tend to do just average. Some shares that put up a few years of great outperformance will stagnate or fall in the following years so that their overall long term return is merely average. This is why investment advisors have to put that little disclaimer on their publications about "past results being no guarantee of future success."
It has in fact been proven by extensive research that when the market has had a number of good years a downturn is inevitable, and when the market has been bearish for a while an upspring is due, all in direct opposition to the random walk theory that usually accompanies the efficient market hypothesis. The market is chaotic, in the same sense as the mathematical definition of non-linear systems in physics and mathematics. It isn't often statistically predictable, but it certainly isn't random. Some great indicators have been fashioned out of this advice, see the section on contrarian investment for more details.
So what was the point of this article? Merely to state that "long term" means decades, not just a few years. Investing in the markets for five years is no guarantee at all of success. In the portfolios section of this FAQ I've written an article entitled "Returns of Each Asset Class", I produced three long term charts showing the rolling returns for five, ten and twenty year periods of holding US stocks. "
My suggestion is that people who wish to invest in the stockmarket spend some time reading and learning, and
http://www.travismorien.com/FAQ/main.htm
is a very informative site to begin with.
As for Tryhard, your statement
"arguably the most knowledgeable people involved in the industry"
maybe a little over the top. However I am fully prepared to listen to your arguments as to why you think so!!
bye
).
