Timing is everything to investors - or is it?

The Vanguard Group, the vast Pennsylvania money managers who pioneered index stock funds for retail investors, repeat the mantra “stay the course” every chance they get. They must have people like me in mind.

Here’s a bit of ancient history that bears repeating, and not only because human folly is eternal. It comes from one of the last times that the major markets have suffered great turmoil, and we all need to be mentally prepared for such times, especially with the disruptions that the financial system has been experiencing lately.

It was the early 1980s when I first started making a good enough whack to have some money left over after food and fun, but I’d been so put off by stocks because of their endless sideways grind in the stagflationary 1970s that I just stashed all my savings in a money market fund.

That wasn’t quite as daft as it might sound now, since those funds were paying high interest rates – it was the period when central bankers had determined to squeeze inflation out of the system and rates on short-term money were extremely high.

Granted, that was only true for a short while, and then rates slid down and, in turn, the great stock boom of the 1980s took off. Yours truly must have been elsewhere, because I only woke up to the big gains people were enjoying in growth stocks around 1987.

Friends were swapping stories of the profits they were pocketing, so, not to be outdone I plunked all my savings into an index fund in the summer of 1987.

Just as if the market had been waiting for my move – and there really never was a better explanation for the trouble – it collapsed in October of that year.

Of course, I panicked and put in a sell order for much of what I owned. I lost 30 per cent on those shares. And when the market promptly shook off its attack of nerves I was not in there to benefit from the recovery. That’s what you’d call a case of bad timing.

NOT ALWAYS UNLUCKY

I won’t pretend I’ve always been that unlucky. After the 1987 debacle, I regained confidence and edged back into the market and had a nice, wealth-enhancing ride through much of the 1990s. But when the market became enamoured of stocks with no earnings and ignorant day traders were having their heyday, I couldn’t get over how wrong they had to be.

After all, this was not just my opinion. Alan Greenspan, the then chairman of the Federal Reserve with certified guru status, was calling it irrational exuberance.

So I hopped out of the market years before the correction occurred after the Nasdaq with its over-hyped tech stocks peaked in March of 2000. Sure, I was proved right eventually, but my timing stank. Nobody could have called the exact right time to take his winnings off the table, but I didn’t even come close.

More recently, I followed the herd out of dollars into pounds and euros just before the dollar staged a recovery. At least I held my nerve and waited for the dollar to sink again. It was a longish wait, but I’m ahead now.

Emerging market indices are at all-time highs, too, and while that’s not a surefire sign that the direction from here is down, it should give investors pause. Timing isn’t everything in investing, and getting it wrong can be costly, but it’s also impossible to avoid making bets on where you expect markets to go.

It’s a bad time to buy property in several places where there is a glut of new housing units and/or prices have lost touch with underlying incomes: South Korea, the United States and the United Kingdom come to mind. My younger brother bought his first house in London at the peak of the housing bubble in the late 1980s. It was many years before the home was worth what he paid for it. That’s not a mistake anyone wants to make: even if you have to have a place to live, when prices are obviously out of hand, the rational answer, whatever the wife says, is to rent!

VULNERABLE ASSETS

It’s a more subtle question what to do if your money is already invested in some of those assets that seem vulnerable. The trick is to adjust your portfolio so that whatever the outcome in terms of stock prices, bond prices and housing prices, you won’t feel too regretful. That may just mean lightening up a bit on stocks and adding to cash. Don’t let capital gains tax deter you from making some sales, unless you face a very high marginal rate.

Remember, better to pay the taxman something than to see a sharp drop in portfolio value eat much more of your wealth.

If you know you’ll need to get your hands on some of your money soon, this seems like a good time to turn assets into cash. If you live in what you suspect is an over-priced house, you’re probably stuck, unless your powers of persuasion are very strong. My conversations with my wife about downsizing to realise the gains on our house before the local boom goes sour never seem to go anywhere. She says I can move if I’m worried about the economy, but she’s staying put. When it comes to individual stocks you really do have to decide whether the company in which you’ve invested is so strong for the long-term that a buy-and-hold strategy makes sense in all economic conditions.

I invest in small biotechnology stocks, and have learned that their prices often overshoot in both directions, so timing my buys and sells is a big part of profiting. A few days ago, my shares in Biomarin went up much more than I expected when the Food and Drug Administration approved one of their drugs – an approval decision that surprised nobody.

I like what Biomarin is doing – their pipeline has some promising candidates and they know how to develop drugs and obtain approval – so I had not planned to sell my holding, but this looked like overshoot to me and I have taken my profits – up 40 per cent since I bought in less than three months ago. The stock price has already dropped back a little. I’m hoping to buy shares back at a more advantageous price, probably from people who listen to a fast-talking television personality who featured the stock this week.

When they find this is not the next Google, they’ll get bored and sell to me for less than they paid. At least, that’s the theory – sometimes my assumptions don’t work out so well and I could always get left behind. No, timing isn’t everything in investing, and getting it wrong can be costly, but it’s also impossible to avoid making bets on where you expect markets to go. Especially when there are abundant warning signals that markets could be about to tumble, isn’t it irresponsible not to watch your timing?