When is the Best Time To Invest?

When is the best time to invest? A question for the ages.

The facetious answer is 10-years ago, however, I digress….

With the information we have today there is an easy answer and a hard answer.

Here’s the easy answer.

During a drawdown.

A drawdown is a peak-to-trough decline in capital during a specific period of time.

Every strategy, every style of strategy and every fund manager will suffer drawdowns. If you come across a strategy, or someone touting a strategy, that doesn’t have drawdowns,  run the other way.

Let’s look at a real-time example.

This is the equity curve of the Premium Portfolio that we run over at Trade Long Term.

From June 2020 (A) through January 2021 (B) the portfolio ran up +130%. Everyone’s my friend and life is good.

Then the inevitable drawdown takes place. In the space of a month the portfolio dips 30% (albeit within the realms of what is expected for this aggressive portfolio).

I’m now ‘Nick no friends’.

Below is a tweet I made the day prior the bottom of that drawdown at (C).

And as can be seen from the above equity curve above, from (C) through to today, the portfolio has almost fully recovered; a 29% gain in under 3 months.

However, as is always the case, those that can’t handle the heat jumped ship at the lows at (C) when in fact that’s the exact opposite of what one should do.

Think of it like a value investor thinks about a world class company. They wait for share price weakness and invest when others are fearful.

If the strategy has a long term positive expectancy (as all ours do) then the absolute last thing to do when a drawdown comes is stop trading it.

To hammer home my message, here’s a second tweet in May as the equity curve was consolidating at the lows.

So that was the easy answer.

What’s the hard answer?

It’s impossible to predict when that drawdown will occur.

A lot of people were convinced in June 2020 that much worse was yet to come. COVID was spreading. Global lock downs. US riots. Economic contraction. Trump.

Ding-dong-wrong. Equities surged higher.

So, what’s the hard answer?

Stay invested for the long term. Roll with the punches. Allow the positive expectancy to play out.