A debate has been raging in recent weeks about the valuations of US equities, the US is the most important stock market that cannot be ignored, even if you invest elsewhere. Just to remind you the US market would have to fall by 40% just to hit the US market long term average.
What is the importance of long-term averages? They provide the best indicator of stock market trends, both on long term support for the continuation of a bull market and on likely target price if the market drops temporarily below the long-term average.
Part of the problem is that the investment markets rely on mathematical models, which tend to underestimate risk. Also, many investment professionals get seduced by market valuations, when they are on the rise, and so tend to discount bad news, until it is too late.
In the real world, catastrophic events do happen and can destroy investment values, so it is best to not get complacent. When a market is trading above its normal average then it’s hot, the hotter a market becomes the more you must be ready to take evasive action, such as moving funds to safe haven or a stock market that is currently out of favour.
It is even more important to take heed of any over-heating of the market if you hold investment trusts for a while, particularly if they have risen to a premium to net asset value.
We note that two of our recommended trusts have achieved capital gains of 62.61% and 60.76% over 12 months. We also have done quite well over the last month with five of our selections proving their worth in second spot down to sixth spot, second spot achieving 13% and third spot 12.39%. Time perhaps to sell off a proportion of holdings perhaps.
If you are tempted to invest in one of several new investment trusts that are being marketed with hype, unless you have a compelling reason to throw money away, we suggest you wait until sometime has elapsed, particularly when there are some compelling investment propositions available.
If your portfolio is causing you concern, then do contact us for a second opinion. If your portfolio is not causing you concern, then there is even more reason for you to contact us!