The past couple of months have been quite volatile and hectic on the markets. A lot has to do with socio-political tensions and possible trade wars. Nonetheless, if you look at it purely from a statistical point of view, the current bull market conditions that have been going on for the past 9,5 years now could possibly hit its end. Based on research that I have been doing on indices, and supported by the following article (https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d), bull markets on average last for about 9 years —we are at 9.5 years now— accumulating 474% of returns per bull cycle —we are at 335.1% now. Bear market cycles on the other hand, last 1.4 years on average, with an average cumulative loss of -41%. As such, under the hypothesis that you would enter the market at the right time, that is just before a bull run and never leave the market again, you could —on average— benefit a factor (4,74 + 1 = ) 5.74 multiplication of your investment, after which you would lose 41% (and thus keep 59%) of it. If you multiply those, you would end up with 2.8 —almost 3— times your investment, after 9 + 1.4 = 10,4 years on average. More on calculating percentages, you can find here.
As I state in my biography, and as I mentioned many times before, it is nearly impossible to time the market right. It is nearly impossible to know when the market reaches an all-time high, and when it reaches an all-time low. Nonetheless, in my experience, when the market drops, let’s say 20%, you might be pretty damn sure that you can buy assets at a bargain price. Otherwise said, I find it more easy to identify the lows rather than the highs.
It is with that in mind, together with the high volatile market conditions since March, that I had started started divesting and holding parts in cash on eToro. This in order to open long positions on the moment things would go haywire, and stocks would hit a low. To be fair and honest to you all, this wasn’t the best choice with respect to my strategy I am pursuing on eToro. True, the cash I have withdrawn from eToro, for which all of my copiers should have received a cash back into their available funds, was rightly timed, just before an important correction in the markets. True, divesting to cash in volatile markets is not such a bad idea. Nonetheless, it wasn’t the right choice with respect to the strategy I am pursuing on eToro. It is thanks to doing research into indices and their performances, that it has occurred to me that I wasn’t sticking to my original strategy anymore. This strategy was a long term one, and consisted of having a fully statistically optimised portfolio, being fully invested in long term trends I believe in and not having cash at hand —at least not on eToro. It is by analysing data and realising that I am pursuing the long term goal of tripling my wealth within 10,4 years on average, that I have realised I need to come back to this core strategy.
With the research I have been doing (see earlier posts), I have showed that optimising with 6 months historical data for maintaining a portfolio for 3 months forward under MPT, has the potential for highest returns in bull markets. I am currently working out more models to test how I can find similar data for different conditions in different market conditions —like bull versus bear.
I want all of my copiers to know that I am going back to my core strategy. As of my next portfolio rebalancing, which I scheduled to be 3 months after the previous one —on September 18th— I will once again be fully diversified and invested, and not hold (too much) cash at hand on eToro. I’m also planning on adding a small amount each month to my portfolio in order to increase my exposure. You might get notifications regarding this, inviting you to do the same in order to be able to remain copied in all of my positions. I leave it up to you whether or not to follow me and to the same move. Nonetheless, with respect to the statistical findings that we might be hitting the end of the bull run, I will also set another amount aside in cash —although not on eToro— for when hard times come, allowing me to buy stocks at bargain prices. I also leave it up to you to do the same.