Modern Australian
Men's Weekly

.

Timing the share market is hard – just ask your super fund

  • Written by David Bell, Executive Director, The Conexus Institute; Associate Investigator, CEPAR, UNSW

The past financial year has been one of the most volatile on record for stock markets, yet almost every Australian super fund has delivered similar returns.

This not only demonstrates that super funds very rarely make large calls about when to buy and sell, it also gives an insight into what we should do when making our own investment decisions.

Back in mid-February stock indices in Australia and overseas were at all-time highs. As COVID-19 took effect stock markets collapsed about 40% in less than five weeks.

Then over the following three months amid massive injections of stimulus, both monetary and fiscal, many of those markets rallied by close to 40%.

A super fund prepared to trust its judgement on timing could have done very well indeed, selling “going underweight in shares” as the news of COVID hit, and then buying “going overweight” when the market hit bottom.

In fact, few did. The data insights firm Chant West reports that most so-called growth funds (exposed to growth assets such as shares) did much the same thing, recording a median loss of 0.6% over the year, gaining 6.4% in the seven months to the end of January and losing it in the five months that followed.

Why don’t super funds time markets?

Super funds are hesitant to aggressively time markets because it is both challenging and risky.

Even with the benefit of hindsight it is difficult to identify all the reasons why a market moved in a particular direction. It is harder in real time, when a judgement needs to be made about whether a movement will continue.

No single person or firm has access to all information, both public and private, and knows how to weigh each piece of information through time.

Read more: The S&P 500 nears its all-time high. Here's why stock markets are defying economic reality

Some approaches to timing seem to work for a while and then stop working (a phenomenon known as regime change).

It is the same for investment managers: some have been lauded as successful only to subsequently fail.

Switching strategies is hard

It might sound counterintuitive, but it is especially hard for chief investment officers of super funds to switch strategies.

Timing the share market is hard – just ask your super fund Investment officers need to front commitees.

These days chief investment officers tend to perform executive rather than hands-on duties.

They can have responsibilities ranging from team management to communications. It is hard for them to get the time needed to bring together all the information they have access to, weigh it up and form a considered view.

Regardless, any view that the chief investment officer does form is likely to be diluted by the bureaucracy of the fund.

Sizeable market calls typically require approval by an investment committee or board, which can lead to a time-consuming, if healthy, debate and second thoughts.

And many super funds are wary of their peer group. They don’t want to take the risk of doing something different which might see them underperforming the funds with which they are compared.

Read more: No snapback: Reserve Bank no longer confident of quick bounce out of recession

Ultimately the sizing of any attempt at market timing is likely to be small. Super funds are big, and find it hard to move without moving prices.

It means that even being 5% underweight or overweight in something is a big call.

It’s even harder for us

Consumers find it even harder to time markets.

Institutions have better access to information and insights, and the people who run them generally have better qualifications and experience.

And we are misled about how consistently they can get it right.

Investment funds usually don’t mention the managers who under-perform, and the media loves winners.

Even Hollywood eulogises the winners: the movie The Big Short tells the story of three hedge funds who made huge profits during the global financial crisis.

Read more: Gambling on the stock market: are retail investors even playing to win?

What it doesn’t mention is that there were more than 10,000 hedge funds at the time and, while a small number made huge profits, thousands lost heavily and had to close.

If consumers are interested in trading, which can be fun and engaging as well as stressful, they need to be aware that, on average, they are no more successful than the super funds, and not particularly successful at timing switches of options within their funds, such as from “growth” to “conservative”.

Diaries can help

One way to get better is to keep a paper diary detailing potential positions and the reasons for them, all the time indicating why they should be any better than the positions taken by professionals.

It is critical to be aware of the potential for loss and the financial and psychological effect it can have, how exposed to those losses you are and what your plan is for when they turn up.

Meeting a financial advisor can be a good place to start.

Authors: David Bell, Executive Director, The Conexus Institute; Associate Investigator, CEPAR, UNSW

Read more https://theconversation.com/timing-the-share-market-is-hard-just-ask-your-super-fund-144202

How To Keep Vase Flowers Fresh Through Australia’s Coldest Months

Winter flowers develop slowly, which gives them stronger structure and longer vase life Heat from indoor environments is the biggest threat to th...

Artificial Intelligence is Powering the Growth of Australian Telehealth Services

Many Australians have traditionally experienced difficulties in accessing timely and quality healthcare, especially those who live in rural or remot...

Powering Shepparton’s Businesses: Expert Commercial Electrical Services You Can Count On

When it comes to running a successful business, having reliable, compliant, and efficient electrical systems is non-negotiable. From small retail ou...

Maximise Efficiency: Cleaner Solar Panels for Optimal Performance

Solar panels are a smart investment in energy efficiency, sustainability, and long-term savings—especially here in Cairns, where the tropical sun ...

7 Common Air Conditioner Issues in Melbourne – And How to Fix Them

Image by freepik Living in Melbourne, we all know how unpredictable the weather can be. One moment it’s cold and windy, the next it’s a scorchin...

Powering Palm QLD with Reliable Electrical Solutions

Image by pvproductions on Freepik When it comes to finding a trustworthy electrician Palm QLD locals can count on, the team at East Coast Sparkies s...

The Smart Way to Grow Online: SEO Management Sydney Businesses Can Rely On

If you’re a Sydney-based business owner, you already know the digital space is crowded. But with the right strategy, you don’t need to shout the...

What Your Car Says About You: The Personality Behind the Vehicle

You can tell a lot about someone by the car they drive—or at least, that’s what people think. True Blue Mobile Mechanics reckon the car says a l...

The Confidence Curve: Why Boudoir Photography Is the Empowerment Trend You Didn’t Know You Needed

Boudoir photography has been quietly taking over social feeds, Pinterest boards, and personal milestones—and for good reason. It’s not just abou...

Understanding Level 2 Electricians: Why Sydney Residents Need Licenced Experts for Complex Electrical Work

When it comes to electrical work around the home or business, not all electricians are created equal. In Sydney, particularly when you're dealing wi...

Retirement Anchored in Model Boat Building for Waterford’s Doug Unsold

WATERFORD — When Doug Unsold sees his ship come in, it’s usually one he’s crafted with his own hands. The 67-year-old retiree from Waterford ...

The Science Behind Alarm Clocks and Your Circadian Rhythm

Waking up on time isn’t just about setting an alarm—it’s about working with your body, not against it. At the heart of every restful night and...

How to Use Plants to Create a Calming Atmosphere in Your Home

In today’s fast-paced world, cultivating a calm, soothing environment at home has never been more important. Whether you live in a busy urban apar...

How Maths Tutoring Can Help Students Master Maths

Mathematics can be a daunting subject for many students, often causing stress and frustration. However, maths tutoring has proven to be an effective...

Refurbished iPads Are Better Than New Ones (Here's Why)

Image by rawpixel.com on Freepik Apple's refurbished iPad program has quietly become one of the best deals in tech. While everyone obsesses over the ...

Your Guide to Finding the Right GP: What Perth City Doctors Offer Today

Choosing a General Practitioner (GP) is one of the most important health decisions you’ll make. Luckily, Perth’s vibrant CBD now hosts a new ge...

Why Every Mining Operation Needs a Robust Safety Management System

Mining is one of the backbones of the Australian economy, particularly in Western Australia. Back in 2019-20, mining contributed 10.4% of Australia...

Australian Classic Literature Enjoys Resurgence

Welcome back to the good old days of storytelling! As the modern world becomes increasingly more demanding, returning to childhood favourites offers...