One of my favorite books was written by Nick Murray called the Excellent Investment Advisor. This book highlighted the fact that investors always do the wrong things at the wrong time: they buy when they should sell and they sell when they should buy.
As the end of the year fast approaches, the markets continue their bumpy rollercoaster ride. The selloff in the technology sector reaffirms Nick’s belief that investors continue to do the wrong things at the wrong time.
At the beginning of this year in RRSP season 2000, over 70% of all new money flowing into mutual funds went into sector related funds. Most of this was flowing into technology products. And why not? The average technology fund posted a 77.3% return in 1999. After the fact, investors were flocking into these high-flying investments hoping that they would produce returns of the same magnitude in 2000.
Unfortunately for these investors, 2000 was not as generous. To the end of November 2000, the average Technology fund was down 9.3%. And what is happening now? Investors are selling off Technology.
It will be interesting to see what happens in 2001. We are now over the uncertainty of the elections in North America and we watch closely to see what is going to happen to the North American economy, interest rates and inflation.
I’m not sure what the next few months will do to the markets and I also have no idea what will happen in the next 6 months. Markets will do what markets do and trying to predict the short-term future of the markets is a risky proposition. Statistically, you have a 50/50 chance of being right in trying to time the markets in the short term.
However, if history has told us that over time markets go up 75% of the time and down 25% of the time. History has also taught us that markets will often rebound after tough years like 2000. For these reasons I have an optimistic outlook for 2001.
Where most investors are selling off technology for the hope of the next big payoff, remember that Nick Murray was right when he said that investors do the wrong things at the wrong time. According to some of the research that we are doing there is over a 90% correlation between last year’s winners and this years best sellers – further evidence that Nick Murray is right.
Do the right thing at the right time
Now may be one of the best buying opportunities in history. I certainly cannot guarantee that in the next 1, 3 or 6 months this statement will be true. However, I can say with confidence that given more patience and time, markets will rebound and go up. If you want some further verification, have a read through Nick Murray’s new book Simple Wealth, Inevitable Wealth. A book designed for investors about the principles of wealth through equity investing and long-term thinking.