Weekend Money: Only clairvoyants can time when to dig into the market

By Mary Holm

Money Matters

All the different investment areas - shares, property, unit trusts, managed funds - are market-driven. Their value can go up and down depending on market conditions.

It would be good to point out to people not to buy in at the top of the market, but to keep money in cash and buy when the market drops.

Of course, that means you might have to stay cashed up for a while. But it's still better than buying at the top and waiting for years to come back to a profit situation.

This has happened to me through being a bit casual in watching our investments.

We bought Brierley shares some years ago and, of course, took a paper loss.

We should have sold, possibly, and bought at a lower price, but things happen so rapidly you have to be very quick.

By buying at lower prices after the crash we brought our break-even price down to $2.10 (averaging down, some say, is a risky venture). But Brierley continued to pay dividends for many years until this year.

Brierley took another dive this year and we bought in again at $0.38, to bring our break-even down to $1.10. The share price has risen to $0.53, so we are making progress as long as we don't run out of cash ...

A: Stop, stop! Not only have you already gone past the 200-word maximum, but your tale (which includes a similar experience with an Asian share fund) is just too distressing.

What has happened to you is not the result of being "a bit casual". It's the result of being human.

As we all know, it's human to err. And, by my reckoning, you've made three errors:

* You've tried to time the market - and suggest others do the same.

Forget it. You don't only have to be quick, as you say, but also clairvoyant.

Buying a share is like jumping on a rollercoaster with no idea what heights or depths are in store for you.

When the price heads down after a long ride upwards, that could be a blip before a further climb, or the start of a plunge. If you try to buy low and sell high, you might do well about half the time - on the basis of dumb luck. Particularly lucky people might score even better.

But, by the time they pay brokerage, few come out ahead over the long haul.

Research has shown, over and over, that it's much smarter to buy and hold shares. And it's much less time-consuming.

* You've thrown good money after bad, doing what you call averaging down.

It might be a comfort to know your average Brierley price is less than it used to be. But that comfort might come at a high price.

Before you buy any more Brierley shares, at any price, ask yourself: "If I had never owned any Brierley's, would I be spending this money on these shares now?"

If the answer is no - and it probably will be - then don't buy.

While it's human to keep in mind what you paid for an investment, it's not rational to make buying and selling decisions based on that.

If you're investing, you should put money into whatever looks best. Take into account what you already own, in terms of balancing your portfolio.

But don't take into account what you paid for your current investments.

If you're selling, get rid of what looks least promising. Again, bear in mind your portfolio mix, but not purchase prices.

* You seem to have concentrated too much on one share.

You don't say what all your investments are. But it sounds as if Brierley shares make up a significant proportion.

It's risky to put lots of money in a single company - as you've learnt, only too well.

Later in your letter, you say: "One could invest in a share fund, say a Top 40 passive, and hopefully smooth out the highs and lows."

Indeed, one could. And one probably should. But, apparently, you haven't done so.

You poor old thing. I've been a bit rough on you. You do make some good points elsewhere in your long letter.

The best of them: "People should start early in life, say age 20, and then you will have plenty of time to improve your investment thinking by making your mistakes early on."

Can't argue with that.

Early starters also accumulate much more wealth, simply because their investments will compound over many years.

Q: My wife and I are both high school teachers. To do our school work such as preparing tutorials, lessons, projects and recording data, we use our personal home computer. The computer is an essential tool for us.

We bought a new computer for $3000 recently on hire purchase. Please let me know whether we claim a tax rebate against it?

A: Sorry, but as wage or salary earners you can't deduct any of your work expenses.

That will probably seem unfair to you. Your self-employed neighbour may use his computer less for his work than you do, and yet be depreciating it every year on his tax return.

On the other hand, he doesn't get paid sick leave and holidays, or any of the other advantages of being employed. So it all evens out.

In other countries I've lived in, most notably the United States, wage earners could deduct quite a few expenses. The downside was that everyone spent many hours each year filling out their tax returns.

Over all, I think the simplicity of the New Zealand system - in terms of wage and salary earners' taxes - makes it a better one.

* Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland; fax: (09) 480-2054; or e-mail: maryh@journalist.com. Letters should not exceed 200 words.

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