Don’t rush to take profits in a bullish market. Juheng Fund advises investors to follow the trend continuously for brighter returns.

By admin Mar 20, 2024

In recent times, stock markets in Taiwan, the US, and Japan have been hitting historical highs, causing concern among many investors about whether there is still room for further gains. The question arises: Is now the right time to take profits? Juheng Buy Fund believes that as long as you follow the trend, taking profits is not necessarily the best strategy.

According to Juheng Buy Fund’s General Manager, Zhang Rongren, based on backtesting analysis, a short-term surge in the stock market does not necessarily indicate a higher probability of a future decline. Instead, it is more likely to continue and expand the upward trend. Therefore, exiting to take profits may not be a good investment strategy. Observing data since 1927, when the US stock market has risen over the past three months, the probability of further increases in the next three months ranges from 65% to 76%. Conversely, if the market has declined in the past three months, the probability of an increase in the next three months decreases to 56% to 67%.

These backtesting results not only differ from common perceptions but also indicate that when the stock market shows strong short-term performance, it is not only less likely to pull back but is actually more likely to continue to rise.

Further analysis by Juheng Buy Fund reveals that since 1927, assuming annual investments in the US stock market at the end of each year and reviewing the year-to-date returns at the end of each month, selling all holdings if they exceed the profit-taking target and reinvesting at year-end can yield different results. With a profit-taking target set at 10%, the average annualized return for three consecutive years of investing is 6.3%. Increasing the profit-taking target to 20% results in an average annualized return of 8.9%. However, if profits are not taken, the average annualized return can increase to 11.2%.

Zhang Rongren stated that based on the example of the US stock market, not taking profits has shown better performance, and continuously investing following the trend can enhance the efficiency of wealth accumulation.

In addition to the US stock market, the recent strong performance of growth stocks, technology stocks, the Indian stock market, and the stock markets in Taiwan and Japan raises the question: Would not taking profits lead to better performance? In response, Juheng Buy Fund conducted statistics and found that over three years of investment, with a profit-taking target of 10%, the average annualized returns for US growth stocks, Japan, India, US technology, and Taiwan stock markets range from 2.3% to 10.5%. When the profit-taking target is set at 20%, the average annualized returns increase to 5.6% to 11.2%. However, adopting a no-profit-taking strategy can lead to average annualized returns of 9.6% to 21.9%.

Zhang Rongren advised that single-country stocks or sector funds tend to experience significant volatility, and when these assets strengthen, the extent and duration of the upward trend often exceed expectations. He recommended that investors not hastily take profits due to short-term rallies. In a bullish market, choosing funds with promising prospects and maintaining a long-term hold is a better strategy for achieving superior returns.Jump to latest

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