The world is waiting for the outcome of next week's presidential election in the United States. The US market has been weak in the run-up to this event. The Dow Jones index is at the same level it was in early 1999, before the final tech stock blow-off that many of us still shudder to recall.
The play Waiting for Godot tells the story of a world where the act of waiting never ends. This must sound familiar to followers of the stock market.
Nevertheless, the JSE Securities Exchange has managed to nudge through to new highs - without the help of rand weakness or a US bull market - and has climbed 60 percent from its low 18 months ago.
I recall that last April many well-respected market commentators were waiting to see some rand stability... a clearer sign that the world economy was growing strongly... clearer direction for local interest rates... an abatement of the negative sentiment following the release of the Mining Charter...
It seems most of the market is always waiting for some new information to help with the decision to invest. The bits of information that none of us had to wait for last April were the fact that the price/earnings (p:e) ratio of the market was below nine and that the market had fallen 30 percent in less than a year. What a lovely science hindsight is, but there is still a lesson here.
While I agree with the advice that time in the market is generally more important than timing the market, there have been a few occasions where it took investors in the JSE more than a year just to get back to the value they initially invested. The most notable points when this occurred were in 1969, 1974, 1980, 1987, 1998 and 2002. So, it pays to think carefully when you are going to invest a lump sum in the market.
Making your big stock market investment after a long bull market can set you back a little, because the market may need to catch its breath for the next year or two. The good news is that the current uptrend in the market is still quite new, with the market having bottomed out last April. On the occasions mentioned above, the market had trended upwards for as long as nine years in 1998, and at least three years in the other instances.
The key to deciding on the right time to invest is to look at the value you get when you invest.
Local equity market valuations are driven by many factors, including the direction and level of interest rates, economic growth, foreign markets and the currency, to name a few. A common characteristic of the poor entry points I mentioned was that the market had generally seen an explosive re-rating in the years leading up to those points - in other words, it had become much more expensive to invest.
This brings us back to two poor premises on which to base investment decisions - namely, feeling left out and impatience, both of which I have mentioned in previous columns. Once you have exorcised those false premises, take a look at the facts. The market p:e, despite all its flaws as a measure of stock market value, is back at the level it was over a decade ago. That means that, on average, we are paying the same for the future earnings of the com-panies on the JSE as we were paying then, while inflation and interest rates are at least five percent lower today. If you are still concerned that the market has shown strong performance in the preceding months, rather stagger your investments - provided your cost structure allows you to adopt this strategy.
An uptrending market is bound to experience some hiccups along the way, but when it comes to investing in the stock market, waiting for the right value is infinitely better than waiting for the right news.