IS IT TIME TO SELL? As the net asset value per share/unit of my equity fund reached its highest level since inception, is it now time to cash in and wait for it to “correct” downwards before going back again?
To answer this question, let us go back to the lessons of history, please observe below the chart of a major world index, much like our PSEi index it established an “all time high” towards the end of 1991, (we normally use a stock index as reference point because an equity fund invests in the basket of stocks that comprises the composition of an index), the question in the mind of most investor then is similar to what we have today, is it time to sell?
Behavioral psychologist have a term for a normal human reaction of using past experience as a basis for estimating future performance, they called it "anchoring" - in relation to the past, current levels seem high already, so it would be "logical" to take profits now and just re-enter the market when the net asset value per share/unit corrects downward.
if investors then have succumbed to this tendency, they would have lost out on the greatest bull run of the US stock market. Because as history would have shown, from a level of 3,500, it marched on to 14,000 in the next few years. (the portion enclosed in the red box is the chart shown above)
is it now time to sell?
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