“You must take a five-year view for this investment”.

You have, no doubt, heard this piece of advice from brokers, Fund Managers and Financial Advisers many times: But how often have you heard them offer advice such as “now is not the time to buy” or a loud and clear shout of “sell, sell, sell!”?

When I look at a 30-year monthly chart I scratch my head and wonder why:

click chart for more detail
click to enlarge

I do not wish to brand all advisers as irresponsible or self serving but if Australian advisers were making such calls, Australian investors would be contrarians. We know this is not the case as our market generally follows global indices.

I am a big fan of simple line charts. Even if you do not wish to study Elliott or Gann or others, you should at least look at a line chart as part of your macro review.

The right-hand shaded area indicates the market is now back at the levels of eight years ago. Had you bought the index (as most of you did, even if only via your superannuation fund manager), you are back to where you were at the end of 2004.

This certainly makes one wonder about the wisdom of ‘buy and hold’.

The other area I have highlighted above is from the 1987 crash. It seems that had you bought any time around the period after the crash you would have done well. But let’s use ProfitSource to step back in time and zoom in on that period:

click chart for more detail
click to enlarge

The market almost halved in the space of a few weeks and range traded for years. In fact, it actually took seven years to reach the giddy pre-crash heights.

Maybe the adage should be ‘take a 30-year view’. If we were all 20-years-old and adopted that strategy then we might be OK. But at that age most of us had other things on our minds and even if we had thought about investing (and had the cash), timing and asset class would still be important.

So is now a time to buy or a time to sell? Next week we will consider this question in some detail. I have been out of the market twiddling your thumbs and sitting on cash for four years and I am keen to make a move when the time is right.

Enjoy the ride

Tom Scollon