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Andy Pfaff - MitonOptimal South AfricaThis hackneyed expression of “Time in the market” is trotted out by the perma-bulls every once in a while. The cynical amongst us suspect it is when their assets under management (AUM) are threatened. It has the same simplistic catch-line and absence of logic as populist political slogans – usually in red – and many religions. Ignore reality, have faith and all will be well. Eventually. If you live long enough. They use simplistic visuals to hook those acolytes too lazy to do the analysis or to think for themselves. “People don’t like thinking because thinking is hard work” (Prof. Evan Gilbert 2015).

Similarly, those very same perma-bulls, in an attempt at vindication, show statistics of returns “if you had missed the best (e.g. 10 days) then your return would have been so much lower.” Amusingly (or deliberately?) there is no balance to the discussion illustrating how much better investor returns would have been if the worst (e.g. 10 days) had been avoided. Or noting that many of those “best days” are the day after many of the worst days.

Bear markets

Bear markets are not the end of life as we know it, but they are a fact of investing life. Over the last 60 years the data shows that:

i.South African equity markets have spent about 20% of the time in bear markets; and

ii.About 26% of the time recovering from bear markets.

Here is a summary of the data. Note that SA equity markets have only spent about 54% of the time making new highs. The SP500 data looks very similar. Is this a place where you want to invest all your money without any risk management?

Note: HWM – high water mark (previous high)

Bear Market Arithmetic

The bear market arithmetic is simple: to recover to break-even levels from the average bear market fall of 38% you need to make 61%. That’s a long way to go before you start making profits. And how much risk do you need to take to make 61%? So what now?

“First Do No Harm”

“Time in the markets” is a terrible expression. The medical profession’s expression of “first do no harm” is far more appropriate in this context. Use risk management consistently. If you don’t lose so much, then you won’t need to take so much risk to recover. You can compound capital from a higher level. Your portfolio will make better returns over time by taking less risk most of the time.


“All asset classes do well at times, but no asset classes do well all the time” (Ray Dalio, Bridgewater). That is why MitonOptimal unashamedly believes in unconstrained multi-asset investing. So don’t just sit in asset classes that are in bear markets in the hope of being eventually rewarded for all your “time in the market.” Use risk management. Reduce holdings when objective, pre-defined risk thresholds are breached. Invest in asset classes that are rising.


Implicit in this is the equally consistent, rigorous use of “buy-stops” i.e. the opposite of the well-known risk management “sell-stops.” The use of objective “buy-stops” prevents the portfolio from missing out on bull markets which a discretionary fund managers’ behavioural biases might have avoided.

The moral of the story?

Investing is hard work. It takes thinking, discipline and consistency. Not just ‘buy and hope’ because ‘time in a secular bear market’ might require more time than you have until you need the money.

Download: Weekly comment, Andy Pfaff – 030619


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MitonOptimal International Limited is registered in Guernsey (Registration No. 51561) and is the overlying holding company of the companies that make up the MitonOptimal Group.
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