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Monday, October 31, 2011

From Deep Panic to Hope – lessons to learn

Over the six weeks following early-September, the US Stock Market Dow Jones Index has risen over 19%! ‘Well done’ to those investors who stuck with their portfolio when the roller coaster ride of August/ September 2011 started – especially our clients who heeded our special advice.

The following chart shows the investment cycle of undisciplined investors: and according to survey results, these people more often end up with less than 40% of the final outcome achieved by disciplined investors working to a well-structured strategic plan appropriate to their circumstances.

The reader is invited to make their own call as to the likely outcome for investments made at various points in the cycle. However, it should be obvious to all reading this chart that when making any acquisition, less gain is to be made when you buy at ‘the highs of the market’. ‘Buying at the highs’ and ‘selling at the lows’ – which fits the emotional pattern above – is exactly contrary to the strategy that will make a portfolio grow.

Where do you think we are in this cycle now?

Whilst the above chart is more relevant to short-term decision-making, the lessons for the long-term investor should also be obvious:
  • Timing markets is difficult – and so buying in over a series of investment tranches (deposits) will remove some of the effect of the risk
  • If you agree that we are somewhere in the range from ‘deep panic’ to ‘hope’ – now will be as good a time as you are likely to encounter in the hunt for Value in the acquisition of further investment assets.
Regular followers of our Blogs and website articles (eNewsletter articles) will be aware that we have published several articles relating to these topics. Please consider a Search at for articles about investing, market timing, dollar cost averaging and ‘happy investing’ to accompany this Blog.

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The information contained in this article is general in nature and does not take into account personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.

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