This is because the entry price and the exit or sale price are the two points which determine whether you make a profit or a loss or break even and how large the profit or loss will be.
The All Share or ALSI equity index is very high at the moment, meaning that many shares that make up the index are fully priced relatively to their historic prices. The important thing to note is also that their price earnings or p/e ratios would be even higher if their earnings were not so high. So what’s so bad about a strong current earnings or revenue stream? It can go down!
So, if we buy shares in most of the firms making up the ALSI now, the price will be relatively high. This means that if we wish to make a good return on our investment, the price obtained at the time of sale will need to be substantially higher and this is extremely unlikely in most cases, even over the medium to long term.
What to do?
Invest in investments and portfolios which contain under-valued shares as well as other assets which are not currently enjoying such popularity and you are far more likely to achieve a good return on your investment capital.
Cautiously managed portfolios investing in under-valued shares are one option, especially those that use their own proprietary research and which are able to invest according to their own philosophies and are not benchmark or index huggers. ETF investors beware, now is the time to consider taking profits and to diversify in mixed mandate funds.
