The Companion Advisor: Techniques & Methods
Why the smart money remains fully invested

Contributed by AIM Insights, Trimark Investments
A Companion Advisor Article

Some investors feel they have enough information to time the market, waiting for the perfect moments to enter and exit

If this sounds like you, there's something you should know. While you're sitting on the sidelines, some of the market's best single-day performances could slip right by you. A poorly conceived timing strategy means you might be forced to forfeit these gains. Indeed, missing even a handful of days could seriously reduce your portfolio's long-term performance.

Missing the 20 best days could cut your return in half

If you had invested a hypothetical $10,000 in the TSE 300 Total Return Index on June 30, 1991, over 10 years, your $10,000 would have grown to $27,611 - an average annual total compound return of 10.69 per cent. But suppose that during that period there were times when you decided to get out of the market and, as a result, you missed the market's 10 best single-day performances over this 10-year period (remember, this is just 10 out of a total of 2,520 business days). In this case, your 10.69 per cent return would have fallen to 6.47 per cent. If you had missed the market's 20 best days (again just 20 out of a total of 2,520 business days) that 10.69 per cent return would have dropped to 3.18 per cent.

It's time, not timing, that counts

The more you try to time the market, the greater your chances of missing the market's biggest single-day gains. That's why most experienced investors don't play the timing game. They don't let the market's short-term fluctuations sideline them or dictate their investment strategy. They are patient investors - focused on the long term. Of course, past performance cannot guarantee comparable future results. But one thing is clear: It's time, not timing, that counts when it comes to potentially maximizing your investment return.

Hypothetical investment of $10,000 in the TSE 300 Total Return Index from June 30,1991 to June 30, 2001

As at June 30, 2001 the 1- 3- 5- and 10-year average annual total rates of return for the TSE 300 Total Return Index are -23.11 %, 3.12%, 10.63% and 10.69% respectively (including reinvestment of all dividends). Returns are net of portfolio fees and expenses and do not reflect sales or redemption charges payable by the security holder. The TSE 300 Total Return Index is a weighted index of 300 of the largest, most widely held stocks traded on the Toronto Stock Exchange and is commonly used as a benchmark to measure the price performance of broad Canadian equity market. An investment cannot be made directly in an index.

Source:Bloomberg.

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