Money matters: Buy and sell when you like

By MARY HOLM

Q: Make the assumption that time has gone by and your fund has done its thing.

A lot is written about how and when and why you should invest, but I have never seen an article on how to know when to take your money out.

Buying is easy. There is always a salesman lined up. But I have never seen a scheme say, "Sell, it is time to spend your money on yourself."

Can you see my point? There is a culture or some sort of pressure that says, "invested money is different. It is for investing not for spending."


A: You know that passage in the Bible about there being "a time to be born and a time to die"?

It lists all sorts of activities - planting and plucking, killing and healing, weeping and laughing - but it doesn't include "a time to buy and a time to sell."

Did Ecclesiastes know something about modern investment markets?

While some people don't need any encouragement to sell their investments and spend, others certainly do. They develop such strong saving and investing habits that they can't change.

Their heirs have great parties with their inheritances, when they themselves could have kicked up their heels.

It would be great for their lifestyle if they received the odd "sell now!" message.

Unfortunately, though, the problem is not that we're never told when to sell. Rather, we shouldn't be told when to buy, either.

That's because nobody can tell, until later, when an investment is at a peak or in a trough.

This doesn't matter as much as you might expect.

If you had superb timing, and invested $5000 in the New Zealand sharemarket on the lowest-price day of every year from 1967 to 1997, it would have grown to $850,000 by 1998.

But if you had lousy timing, and chose the highest-price day of each year, it would still have grown, to $650,000, according to Jacques Martin NZ.

That's more than three-quarters of the higher number - not a huge difference.

Similar research has been done in Australia with similar results.

In keeping with your theory, I've never heard of someone looking into selling shares on the best and worst days. But I'm sure the results would be much the same.

The conclusion, then, is: ignore the markets, and buy and sell when it suits you.

There is one way, however, that you can reduce the chance that you'll happen to bail out at the worst time. That is to sell gradually.

Say you want to spend $30,000 on a world trip in six months.

Set up a programme in advance, and stick to it, so you don't get caught up with trying to time the market.

You might sell $5000 of your investments on the first of each month, and put the money in term deposits in the meantime.

Same thing goes for buying. If you spread purchases, you won't buy everything at a high price.

Q: I read your recent rather scathing article on charting as an investment indicator.

I have been using technical analysis, or charting, for two years and have found it to be an excellent method of profiting from stocks and commodities.

I do trade only the much more liquid US markets, though, New Zealand being a poor bourse to say the least.

Technical analysis does, however, alert you only to possible opportunities. Other factors, such as money management rules, a clear understanding of your own risk profile and an asset allocation model customised to your own financial position, also need to be addressed.

Once this is in place, relative strength divergences, moving average cross-overs and all-time-high price breakouts are examples of simple but concise indicators that, with discipline, most should be able to profit from. It sure is better than listening to brokers' tips.

I have identified 19 US stocks that have been going in a 45-degree climb since January 2000 - simply by scanning price action and then charting it.

The fundamentals of these stocks are virtually irrelevant as a selection filter, as is the state of the general market.

I think the problem is that many are not prepared to take the time to learn technical analysis properly, nor look hard at themselves emotionally.

Without these personal disciplines, you may as well throw a dart at the stock market.

This is just my experience. I certainly disagree with your general panning of technical analysis. Why keep people poor?


A: I would love to make everyone rich. Unfortunately, I don't know how to. And I don't think you've stumbled on the secret either.

Almost every time I've written about charting, somebody comes out of the woodwork to say it has served them well.

But if enough people toss coins, someone will get a run of heads. Perhaps you've been lucky for two years. It would be interesting to see how you go over 10 years.

University of Auckland finance professor David Emanuel says he has done a lot of statistical tests on share price patterns, and the application of trading rules on price sequences, "but I haven't found anything that is a money machine.

"Looking backwards, you can sometimes see patterns. But the trouble is, they break up."

He adds, though, that academics aren't quite as negative about chartism as they used to be.

"There might be short patterns that maintain themselves. But they're of such a size that they usually get wiped away by even 1 per cent transaction costs."

Professor Emanuel admits, though, that chartism could work better in commodity markets than in sharemarkets.

Still, he agrees with me that there doesn't seem to be any logical reason prices set by market forces should consistently follow patterns that can be exploited to earn abnormal returns.

Chartism aside, I commend you for following money management rules, taking into account your risk profile and using an asset allocation model. (For the benefit of others, asset allocation is about how much you invest in shares, property, fixed interest and so on.) If you're pleased with how you're doing, good on you. But it sounds like a lot of work. And there's certainly no guarantee you'll be rewarded for it.

I would be just as happy with the dartboard. Or, better still, long-term investment in a good diversified share fund.

Q: Some time ago, one of your correspondents was seeking a share club to join. Colleagues in my club suggested we get in touch with you to see if any of your correspondents still seek to locate a suitable club.

Our club is called Charisma Investments Partnership.

We have been in existence for around 15 years, and our rules allow for a membership of 12 people. Currently, we have 10, and we wish to recruit an additional two members.

The equity required to join is around $10,000, and our monthly subscription is $150.

Our members, all male, range from early 40s to mid 60s, and have professional backgrounds.

Should you have anyone seeking a suitable club, we would appreciate hearing from you, or directly from an interested party.

I can be contacted by telephone at 09 426-4911, or by my e-mail at ivanerceg@xtra.co.nz


A: Thanks for the info. And don't be surprised if you hear from some enterprising women who find your membership appealing, as well as your club activities!

Share clubs can be overrated - although less so now than in the 80s.

But I think some people might still think they're sure to do better by investing with a group than on their own.

Not necessarily. Unless you trade illegally on inside information, club members' hot tips won't consistently be winners.

Still, membership in a share club can help you learn about how markets work, and give you confidence to perhaps make bolder moves than you otherwise would - which might or might not be a good thing!

You've also got more money to invest, and so might pay lower brokerage and get better service from a sharebroker.

And share clubs are social gatherings. Nothing wrong with that.

For more information on share clubs, see www.shareclub.co.nz.

If any other clubs are looking for members, send me brief details and contact information. I'll run a list in a couple of weeks.

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