Patience is the key for ETF investors

This is not an alert but just some general comment on the Quentinvest for ETFs approach. Once I have bought the latest alert for the PowerShares S&P Small Cap Health Care ETF I will have 14 ETFs in my portfolio and with two follow-up buys made to date will have made 16 investments. These ETFs broadly track what is happening in world stock markets so they are heavily influenced by the overall trend. If you look at the chart above, which is a monthly candlestick chart, you will see that share prices worldwide have made modest progress since October 2017 (count back eight candles to find out what was happening last October) but have also spent much of the time at levels significantly higher than where they are currently.

The significance for me and for anybody following my ETF strategy is that so far you and I are not making any progress.The performance is around breakeven or was when I last looked. This might seem disappointing but is actually nothing of the sort. QV for ETFs, like QV for Shares, is a long-term strategy. What is significant for us is that the secular trend in shares is broadly higher. As long as that condition is fulfilled we will do very well as and when the trend to higher levels resumes, which on all past evidence it will.

Many years ago I was the editor of a publication called the IC (Investors Chronicle) Stockmarket Letter. My predecessor, Peter Doye, had the job for many years and had a very good concept about investing. He used to talk about buying shares as sowing the seeds with a view to patiently allowing them to germinate and grow (i.e. become more valuable) so that eventually you as an investor could reap the harvest.

If you think of our investments in ETFs so far as a process of sowing the seeds you can see how the lack of immediate profits is not an issue. We are laying the groundwork to create substantial value in the future. Unlike me, Peter Doye was a great believer in taking at least partial profits. He liked to sell half when a share doubled so that your remaining investment was pure profit.

It is not a bad approach but not one that I advocate. I much prefer to allow miracles to happen and to put all the emphasis on careful stock selection and patience. We are not a million miles apart in our approach but for me it is not about buying and selling, it is all about building a great portfolio. If we do that patiently and steadily the gains will come  and they will be big!

All trading involves risk. Losses can exceed deposits. Quentinvest provides information only and subscribers should seek financial advice before acting on any recommendations. Past performance is not a guide to future performance.