Orwell, I totally disagree with that argument of "most experienced investors should be able to make better judgements" and i truly hope newer investors reading don't think they can just do that sustainably. It flies in the face of all the successful and wealthiest people I either know or have had something to do with at a professional level.
Smart investors don't sell good companies; if anything they hedge with SPI futures or other derivatives with inverse correlation to their underlying portfolio. Sure, take some off the table if you really think a stock you own is uber frothy. Again, problem I've seen time and again is people selling stocks like DMP earlier in the piece because the PE is too high, only to watch it continue on its merry path, while they miss both the capital growth and increasing dividend yield. Additionally, many quality businesses manage to maintain their dividend policies during declines, so you are not being penalised from an income perspective (the whole point of investing and most time-proven strategy for wealth creation generally being to buy assets that generate a profit and distribute that profit to its owners).
I would also question using the GFC as a standard example of a market decline as it was one of the more severe falls on markets.
All in all, the only thing I've seen successful investors do when markets are falling hard is continue enjoying their dividend income stream and take stock off the hands of less sophisticated investors who are basically forfeiting their right to that income in the hope they will get back in.
Lastly, the CGT implication is worth repeating. It would be ludicrous to sell, for example, what was an initial $100k investment that has become a $1M portfolio sijce the GFC, which, even with the 50% discount method applied would generate a tax liability of $220k, all just so you can try and time the market with charts. For starters, that $1M portfolio would have a very high dividend yield, due to buying many of the companies when they were less established and profitable, so 12% is more realistic than say 8%. So $120k a year in dividends forgone and a $220k tax liability. That's $340k of eroded net wealth. $340k is 34% of the $1M portfolio, so if you took the path of selling-up and trying to buy back in, you'd need:
For markets to decline by more than 34% for it to be worth your while and for you to be good enough to basically exit near the top and buy back near the bottom. Now note the average decline in Bear markets and assess the chances of that happening (it's basically a 0% chance in some Bears, i.e. the ones that don't fall more than 34%).
You can see why I never advised any of my clients to sell their best businesses during the GFC and i wouldn't recommend anyone do it next time we see a Bear market. It might be uncomfortable but the numbers simply don't add up.
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