When should I start an investment?

Many people ask if there is a good opportunity to start investing at a given moment in time. Of course, there is no clear answer to this question.

Determining whether or not there is a good investment opportunity at any given time depends on many factors. First of all, on the period for which we want to invest, but also on the current state of the market and the nearest prospects for market development. The investment strategy and the appropriate selection of companies for the portfolio are also of key importance. Below, I will try to present investment decisions based on these criteria.

Long-term investment (1 or more years)

Assuming a long term and an appropriate strategy, and if the market has a general upward trend, any moment will be a good investment. Because in the long run, possible short-term declines will be covered anyway by a general long-term uptrend and there is almost always a guarantee that we will not generate losses over a year or longer. In this case, the longer we wait for possible drops, the more expensive the purchase will be. This can be seen in the chart below. Each even large adjustment was more expensive than buying stocks / copying the portfolio earlier.

Medium-term investment (more than 6 months)

Assuming a medium term and a good strategy, it is worth paying more attention to whether the moment of purchase is not a coincidence at the local maximum level of the portfolio or market or a given share. Having only about 6-12 months, we may not catch up on further increases and thus cover possible short-term lower valuations of the portfolio. Correction cycles are sometimes days and sometimes weeks. This has to be factored into the investment risk.

Short-term investment (up to 3 months)

In my opinion, investments for such a short period are burdened with the highest risk of hitting the period of declines even with the correct strategy and general upward trend of the market. So it is impossible to correctly estimate many factors. You can use technical analysis, especially since fundamental analysis for up to 3 months does not make much sense. However, you can check the publication dates of companies' results in a given quarter and take positions in them in advance. If, of course, we expect results that exceed market expectations. This approach, however, applies more to individual companies rather than copying the entire portfolio, where reporting periods may be significantly distant from each other and do not match the investment period.

If the whole market is falling in most cases it has nothing to do with financial results or overall condition of the given companies. On the contrary, such sudden and large drops should be used to strengthen copies or open new positions. My experience and market observation shows that similar declines usually last up to 4 days and most often end on Fridays.

The chart clearly shows that such correction has its bottom, usually at a higher level than the previous one and that the overall trend is upward. Moving average shows the same (grey area).

Over the last two years, corrections have lasted an average of 27 calendar days (excluding the pandemic crash in March 2020). The vast majority last between 18-24 days. You can take it into account before looking for next "market bottom"

So if you are considering additional investments in your copies or starting a new one, I would closely monitor the market and my portfolio behavior during such downturns. This could be one of the better chances of averaging your purchase price down.

Chart: Portfolio behavior 06.2020-02.2021