11 October 2017

Introduction

Several years ago, the famous financial analyst and author Nick Murray coined a phrase, which has since become something of a mantra amongst many professional investors and asset managers. He holds the following view about finding the right time to buy and sell securities: "Timing the market is a fools game, whereas time in the market is your greatest natural advantage."

In regard to timing the market, the painful losses that many investors have experienced, are partly the result of investments being made by professional investors that believe that they can identify the right time to buy and sell an investment. Even if it seems to be appealing to buy at lowest prices and sell at highest prices finding the accurate timing is almost impossible.

The primary reason that so many market timers make mistakes is that they are subject to an array of human emotions, including both greed and fear, which can distort rational thought. There are many scientific books describing the biases and irrational behavior of investors caused by emotions and cognitive errors. The well-known herd instinct is an example of irrational behavior among investors with might lead to unnecessary losses.

Also, most market timers do not have the resources at their disposal to be able to consider all market influences, and thus often miss something fundamental when making their investment decisions. In many instances, professional investors lack the insight or experience to make investment decisions at the right time.

The second part of Mr. Murray's idea is about time in the markets. This is a concept very close to the investment philosophy of LAPIS asset management and their principles of investing. Time in the markets suggests that a prudent investor will take a long-term perspective and hence try to increase its wealth over the long run.

At LAPIS asset management we strictly adopt a long-term rule-based value investing approach. Our unique investment approach allows us both avoiding emotional decision making and benefiting from long-term price increases of undervalued high-quality stocks. In our view this is a persuasive manner, in which market beating investment returns can be generated.

The simple implementation of a buy-and-hold-strategy is not sufficient as many companies do not survive over the long run. As a proof of this, we analyzed the historic composition of the famous Dow Jones Industrial Average (DJIA). A key finding of our brief study was that the composition of the Dow Jones has been changed 51 times since inception in 1896.

The following comparison between the composition of the DJIA in 1982 (shortly before it breached the 1,000 points landmark) and in 2017 where it recorded historic highs of over 23,000 points tells a compelling story, one that every investor committed to long term investing should keep in mind.

Composition of DJIA in 1982 Composition of DJIA in 2017
Allied Chemical Corporation 3M Company
Aluminum Company of America American Express Company
American Can Company Apple. Inc
American Express Company The Boeing Company
AT & T Company Caterpillar Inc.
American Tobacco Company Chevron Corporation
Bethlehem Steel Corporation Cisco Systems, Inc.
E. I. du Pont Nemour & Company The Coca-Cola Company
Eastman Kodak Company E. I. du Pont Nemour & Company
Exxon Corporation Exxon Mobil Corporation
General Electric Company General Electric Company
General Foods Corporation The Goldman Sachs Group, Inc
General Motors Corporation The Home Depot. Inc
Goodyear Tire and Rubber Company Intel Corporation
Inco Limited International Business Machines Corporation
International Business Machines Corporation Johnson & Johnson
International Harvester Company JPMorgan Chase & Co.
International Paper Company McDonald's Corporation
Merck & Co. Inc Merck & Co., Inc
Minnesota Mining & Manufacturing Company Microsoft Corporation
Owens Illinois, Inc. Nike, Inc.
The Procter & Gamble Company Pfizer, Inc.
Sears Roebuck & Company The Procter & Gamble Company
Standard Oil Co. of California The Travelers Companies, Inc
Texaco Incorporated United Health Group Incorporated
Union Carbide Corporation United Technologies Corporation
United States Steel Corporation Verizon Communications Inc
United Technologies Corporation Visa Inc.
Westinghouse Electric Corporation Wal-Mart Stores, Inc.

The above table shows us pointedly that long term investing is not always a sure thing. Merely leaving your money in the markets does not automatically lead to long term investment success, and in fact it is often quite the contrary.

What is clear is that we need a way to identify which stocks will generate above average returns and therefore contribute to the long-term wealth creation. Furthermore, we need a way to determine when it is appropriate to invest in a company and when we should sell certain stocks.

At LAPIS we purposefully apply a long-term rule-based value approach based on a clearly defined and comprehensive investment methodology - as in the case of our Lapis Top 25 Dividend Yield Fund. Hereby, the first step is to determine our population of investable assets (see LAPIS elite list), and then with Swiss Precision, we make our investment decisions without human emotions or other interferences.

We would like to encourage you to register on our LAPIS25 web site and then explore our subsidiary web sites to get a clearer understanding of why exactly our investor returns have been so impressive, how we deal with challenges like timing the markets, to create valuable investor solutions.

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