The Summer months will often see relatively low levels of trading and little excitement but the Summer of 2011 has been unprecedented in terms of the wild swings in value as sentiment has reacted as though on a vast pendulum.
True; some days have seen very thin trading but on other days there have been high activity levels as fund managers try to deal with the ever changing picture.Timing during this turbulence has been absolutely vital, with some managers getting it right and others spectacularly wrong.
We all know the principle is to buy when prices are low and sell when they are high but with daily movements of up to 5% or 6%, judging the right time has become virtually impossible and you certainly do not want a fund manager who relies on luck to make the right call.
Whilst we may know the rules about the best times to buy and sell, human nature often works against us. We gain confidence when things are going well and tend to buy on the back of that Â– this may well be when most of the growth has already been achieved.
And when it comes to bailing out, again we tend to do that when confidence is low and that is probably when values are low as well. So what is the answer?
Time is a major factor, not only the timing of making or encashing investments but also the timescale as to when you need to gain access to the capital. If you are relying on your capital to provide income then your timescale is longer than if you need it for a major purchase at a specific time in the near future. The longer your timescale the better placed you are to ride
out the turbulence.
If you are already invested and have seen fund values drop, donÂ’t turn paper losses into real losses by selling at the bottom and if you have money to invest, consider phasing your investment over a period of time Â– your adviser or fund manager should be able to arrange this for you. And what about the future? Whilst no-one knows for sure, it is generally believed that most of the bad news is already known and that this is factored in to market values but sentiment and politics also play their part.
However, underlying corporate values are looking very good in a lot of cases and with institutional funds pregnant with cash and Government debt looking unattractive, this should bode well for markets as this cash needs to be invested and we should see a return to growth with markets perhaps ending higher by the year end.
In the short term, volatility remains so think carefully about your timescales and phase if you can.