Question:
Some people say that, when investing in the stock market, it is fruitless to time the markets and that once you have invested you should stay the course. Others say that timing is everything and that you should carefully decide when to exit and re-enter, because otherwise you risk losing a lot of money.

Who are right? I invested in SATRIX in December and, after a rough patch, it has been doing quite well over the past few weeks.

Answer:
There are many different schools of thought when it comes to investing in shares. The criteria that would determine your particular strategy is knowledge and time.

The stock market is not for sissies and the ability to choose good stocks is a science. Going in blind and without knowledge is foolish.

If you want to become a serious stock market investor you need to spend time studying the markets. Despite what others might say there are certain fundamental rules that you should follow when buying shares.

To put it simply, you can equate buying stocks to buying a home. Firstly you will look at the location of the home. Is the area up and coming? When buying a stock you would look at the market sector, like mining or financials. Similarly you would try to gauge if the share was in a growth industry. In general you would not expect a home you bought three months ago to appreciate by 30 percent and the same applies to stocks.

If you have taken the time to educate yourself and you are familiar with the timing methodologies traders use, then you could speculate in the stock market.

People who use timing techniques are called technical analysts. Individuals who look at the balance sheets and management of companies are called fundamental analysts. Both have a sound knowledge base.

A general rule of thumb is that people who play the timing game are more active, meaning they buy and sell frequently and they may opt for more risky growth stocks than, say, the ‘blue chips’ like SAB or Sasol.

The ‘buy and hold’ strategy works well with blue chips as they will outperform almost any other investment in the long term and the chances of losing your money are slim. While there is a potential to make better returns with growth stocks they are not as stable and there is associated risk. In other words, both strategies can work.

I am a big fan of SATRIX because it enables the uninformed investor the opportunity to participate in the market without having to become an expert. Remember, the value of your investments will fluctuate over time but in the long term stocks are a solid investment. In fact, whether you like it or not, if you have an endowment, a retirement annuity or a money market account you are exposed to equities. Keeping your money in a bank account with no exposure to shares is 100 percent safe, but the returns do not keep up with inflation. In order to save effectively for retirement we all need exposure to the stock market.