How to hold on in tough times

IT'S as well the BBQ season is almost over since some of the chat MLC investment strategist Brian Parker hears make him frustrated.

Holding on / File

How to hold on tight in tumultuous times

IT'S as well the BBQ season is almost over since some of the chat MLC investment strategist Brian Parker hears make him frustrated.

"The other day I was at a BBQ and I heard this guy say to another: 'You should get into super, it's paying 13 per cent'.

"But, no, it's not. People talk about returns as if it's interest rates," Mr Parker fumed. "Super has delivered 13 per cent over the past couple of years".

In fact, with the recent brutal falls in the sharemarket, super funds this year are expected to have minimal earnings.

Similar errors occur when people talk about and deal with the sharemarket, Mr Parker said.

He cited Boston research firm Dalbar which found in its 2007 report, Quantitative Analysis of Investor Behaviour, that over the past 20 years the S&P500 returned an average of 11.8 per cent.

But it also found the average investor earned only 4.3 per cent.

Mr Parker said this was because the average investor sold their investments after they had already fallen a long way. Then they bought back into the market after they had already risen a long way.

They are buying high and selling low, said Mr Parker, which was not a wise thing to do.

Ideally, he said, with regards to the current volatility in the market, people should have sold their shares on July 24, 2007, which was the day when shares reached their highest point.

They they could have bought back in again on August 17, 2007, when the market had fallen about 13 per cent.

The really smart ones would then have sold all their shares again on November 1, 2007 after the market had rebounded by more than 20 per cent.

Now, after the market has fallen 21 per cent, they would be looking for a new entry point.

"The time to cash up was about 12 months ago," said Mr Parker, "If you didn't do it then then it's a waste of time doing it now."

The trouble is, no one knows when is the right time to buy or sell.

"Getting the timing right is luck. But people mistake luck for skill. If I knew I'd now be in my farmhouse in Tuscany drinking my body weight in wine."

He said that the best investors in the world, from Warren Buffett down, have little or no idea how to time markets as in the scenario outlined above.

He said having a go at it can be fun but punting superannuation, our longest-term household asset, on short-term market moves was "a mug's game at best, and damaging to your wealth at worst".

"As Warren Buffett has observed, the stock market is a wonderfully efficient devise for transferring wealth from the impatient to the patient."

People also often err when buying into the market by looking at past performances, he said.

"People look at past performances and expect that to continue. They don't realise that they'll be buying in after all the serious money has already been made.

"They should think the reverse.

"Look at something that has performed so badly that maybe it will perform better going forward.

"People need to start thinking that way. They need to extract themselves from the past performance mentality.

"Past performance is no guide to future performances" of shares, Mr Parker said.