Growth funds in a sideways market

Hi everyone,

I have a lump sum that I want to invest in growth funds / funds that target growth. I have been waiting for the market to drop so that I can dive in but it keeps going up and now it's at an all time high.

Do you think it's wise to create a growth portfolio in the current market / climate, in the sense that the ASX is at an all time high and seems to be trading sideways?

I understand that at times like these I can buy into dips or dollar cost average for a while but this isn't what I wanted to find out about..

The main question is, can money be made in the stock market at this expensive level by investing in funds that target growth.i.e., if a fund targets growth and invests in growth companies, can this beat the ASX Index?

Or to simplify my question further, I am trying to establish the behaviour of growth funds / ETF's, etc when the index is trading sideways, is it a case of growth and being on 'pause' until the market decides to start moving either up or down?



-Frank

Hi Frank, how long have you been waiting?

willoneau said:

Hi Frank, how long have you been waiting?

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Hi Willoneau ,

I’ve been waiting around 3 months.

In case you’re wondering...

I understand that trying to time the market is not the way to do things and not the long term investment mindset and that I’m probably losing money by not being in the market already

-Frank

Frankieplus said:

Hi Willoneau ,

I’ve been waiting around 3 months.

In case you’re wondering...

I understand that trying to time the market is not the way to do things and not the long term investment mindset and that I’m probably losing money by not being in the market already

-Frank

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It does depend a lot on the time lines you are talking about, but in reality if you are buying quality growth companies, they are either re investing their profits or giving a dividend.
So in reality at the very least you are losing approx 4%, as that is the average ASX dividend.
To put it another way, just prior to their last dividend AFI were $6.50, post dividend of from memory 19c they dropped to around $ 6.25, now in a sideways market they are $7.02 and due another dividend soon.
I'm not using that as a recommendation, just an example, to ponder.
There are many ways of looking at it and it depends on your timeframe, but even if you wait and wait, then jump in, there could be a crash the following day.
So if you take a 10 year approach to the market, there is very little chance you will do better outside the market, especially with interest rates at this level.
The only other thing that will probably do better for a person IMO, is if the don't own their PPR, paying that down at current levels, would take a lot of beating.
Just my opinion.

The need to be right and also pain of DD are strong, is when you get in the market more important than how long your in the market?.

Do you have a system to pick your stocks and are you getting signals to buy?

Frankieplus said:

Hi everyone,

I have a lump sum that I want to invest in growth funds / funds that target growth. I have been waiting for the market to drop so that I can dive in but it keeps going up and now it's at an all time high.

Do you think it's wise to create a growth portfolio in the current market / climate, in the sense that the ASX is at an all time high and seems to be trading sideways?

Click to expand...

I do. If you are taking a bottom up approach to identifying and picking growth stocks, then the overall market doesn't matter so much.

I understand that at times like these I can buy into dips or dollar cost average for a while but this isn't what I wanted to find out about..

The main question is, can money be made in the stock market at this expensive level by investing in funds that target growth.i.e., if a fund targets growth and invests in growth companies, can this beat the ASX Index?

Click to expand...

Lincoln Indicators will tell you that their growth fund consistently outperforms the XAO.

Or to simplify my question further, I am trying to establish the behaviour of growth funds / ETF's, etc when the index is trading sideways, is it a case of growth and being on 'pause' until the market decides to start moving either up or down?

Click to expand...

Firstly, I don't agree with your characterisation of the market as trading sideways. The XAO is up 22% this calendar year (granted it did start the year at a low).

Also, I think that if you are looking to invest using a bottom-up approach to selecting growth stocks then the overall market is not so relevant, especially given how highly leveraged even the XAO is to the top financials and diversified miners. At the end of the day if a company keeps growing earnings and keeps that earnings growth in line with the market's expectations the stocks price will continue to go up in the long run.

I think volatility in growth stock prices comes from a couple things:

1) High PE valuations are based on investor confidence that the management will deliver on the expectations of continued high growth. Volatility often comes in around reporting season if those expectations are not met.

2) Risk-off market sentiment. In the market correction of late 2018 we saw the high PE growth stocks correct first and correct harder but they also recovered first and harder in early 2019. In second half of 2019 it appears that market saw a lot of growth stocks as fully priced and the market sentiment seemed to favour the less sexy stocks perceived to be "value".

Growth stocks always look expensive in terms of PE. Also, when looking at their price charts it can be easy to think that given the price has a good run up it might be too late to jump in, or you decide to wait for a pull-back that never comes. I think that is a trap. For example, a growth stock that I am long in is NAN (Nanosonics). In the current quarter it has traded between about $6 and $7.60. Where in that range would have been a good entry price during that time? My answer is that in five to ten years I will hopefully be saying anywhere in that range was a great price to get in at.

I think that investing in growth stocks, if you have a conviction over them, or the approach of a particular growth fund, is about the medium to long term. The price will be propelled by the underlying performance of the stock more-so than the performance of the overall market.

-Frank

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Great explanation tinhat.

sptrawler said:

There are many ways of looking at it and it depends on your timeframe, but even if you wait and wait, then jump in, there could be a crash the following day.

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In regards to my timeframe I just want to clarify that I am going to retire in about 3-5 years and before I do I want to try to 'grow' some funds and then settle for a more conservative dividend approach and then leave it all long term.

My concern is the market now being at an all time high and I am looking to buy into it . The last time it was this high was in 2007.

Had I invested a year ago, or even 6 months ago I wouldn't be concerned at all because I can look back in history and see that the market -can- get to 6800 approach where it is now. Had it dropped 20% a year ago or 6 months ago I wouldn't care..

But the problem is NOW. The most expensive time ever to buy. Can the market get any higher anytime soon? I don't want to buy in just to watch it decline and take years to get back to where it is now.

We have reached the highest resistance level.. Will the market get past this resistance? This is what I'm worried about.

I understand the logic of time in the market is more important than timing the market but does this ring true if you are starting your time in the market at an all time high of 6800 where it has taken over 10 years to get here?

sptrawler said:

So if you take a 10 year approach to the market, there is very little chance you will do better outside the market, especially with interest rates at this level.

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How do you mean 'outside the market'? Do you mean outside as in the property market or other investment options?

I am a bit of a newbie so please excuse any ignorance on my part..


-Frank

willoneau said:

Do you have a system to pick your stocks and are you getting signals to buy?

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I have financial advisor whom I am comfortable with, he has put together a portfolio for me. Its just a case of me being ready to invest now.


-Frank

It doesn't have to be all or nothing. You may consider investing a third or half now then make another decision in six months time. Your FP should have discussed this option with you.

tinhat said:

I do. If you are taking a bottom up approach to identifying and picking growth stocks, then the overall market doesn't matter so much.

Lincoln Indicators will tell you that their growth fund consistently outperforms the XAO.

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Ok, thanks.

tinhat said:

Firstly, I don't agree with your characterisation of the market as trading sideways. The XAO is up 22% this calendar year (granted it did start the year at a low).

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Well since July or more so Sept 2019 the market hasn't really gone anywhere. Just 'almost' sideways if you know what I mean.. My point is it hasn't gone up much over the past 6 months and seems to be doing less and less over the last few months too.

Thank you for your post though you have answered my question. Its just a case of me being comfortable to invest now.

-Frank

peter2 said:

It doesn't have to be all or nothing. You may consider investing a third or half now then make another decision in six months time. Your FP should have discussed this option with you.

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Yes he has discussed this option

His advice for 2020 was to dollar cost average 25% of my funds over the course of 12 months in a monthly fashion, while I also invest more if I see dips throughout the year, and the amount I invest in dips would depend on the dip

This sounds like a reasonable approach I feel considering where I'm at i.e. wanting to invest but worried the market is expensive. , what do you all think of this idea?


-Frank

Frankieplus said:

Yes he has discussed this option

His advice for 2020 was to dollar cost average 25% of my funds over the course of 12 months in a monthly fashion, while I also invest more if I see dips throughout the year, and the amount I invest in dips would depend on the dip

This sounds like a reasonable approach I feel considering where I'm at i.e. wanting to invest but worried the market is expensive. , what do you all think of this idea?


-Frank

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How will you invest in dips?

willoneau said:

How will you invest in dips?

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Well just invest more money when the market drops a bit,.. Like if we see the market drop for example, say 5%, I will invest a bit more money at that point as it starts to rise again.. So that way I am dollar cost averaging plus investing a bit more at the lower points that happen during 2020..

-Frank

Ask yourself what emotions are driving you?
Greed
FOMO (fear of missing out)
Fear of loss
all of the above?

willoneau said:

Ask yourself what emotions are driving you?
Greed
FOMO (fear of missing out)
Fear of loss
all of the above?

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Mostly fear of loss and secondly fear of missing out.

The FOMO is based on, the need to invest so that I can at least semi retire in a few years. I'm 54 but based on the job I do it's starting to get physically hard now..

-Frank

Frankieplus said:

Well just invest more money when the market drops a bit,.. Like if we see the market drop for example, say 5%, I will invest a bit more money at that point as it starts to rise again.. So that way I am dollar cost averaging plus investing a bit more at the lower points that happen during 2020..

-Frank

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What if it rises 500 points before it dips 300?
Then rises another 500 points before it dips another 300?
Why not work out the shares you want to buy and then pick up a percentage of them, then if they dip pick up some more? Meanwhile you pick up the dividend, which could be in dividend re investment.
I just read peter2's post #11, which says exactly the same, it does make sense.

Frankieplus said:

How do you mean 'outside the market'? Do you mean outside as in the property market or other investment options?

I am a bit of a newbie so please excuse any ignorance on my part..
-Frank

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Well what I mean is, if you are sitting on the money 'outside the market' waiting for a dip to buy in, it is earning nothing in interest and is missing out on dividends.

sptrawler said:

Why not work out the shares you want to buy and then pick up a percentage of them, then if they dip pick up some more

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Actually thats better, thanks.

So you mean pick the Growth Managed Funds / ETF's I want to buy and when they themselves get cheaper buy more. Rather than look at the All ORDS or ASX 200 as a reference for a dip.

This is what you mean right ?

-Frank