From the Table below, you can see that from about end March/early Apr 2018 to end July 2019, the market is defined in three phases - Bull for 5-6 months , Bear 4-5 months and then Bull again 7 months, next? The Smallcap Ordinaries Index largely in tandem with gains/losses of the ASX200 but has a bigger negative during the Bear phase.
If you had stayed in ASXO throughout the period from 1 Apr 2018 to 21 July 2019, roughly a year plus, you would have gained 12% but if you knew how to stay out altogether during the bear phase, your gains would have been 35.8%, almost 3x more. And during the bear phase, just sit tight on cash.
I picked 3 great steady stocks APX, CSL and RHC and while on a cumulative basis, they have been strong (except for RHC), they have not been totally immune during the downturn, albeit they weather rather well , relatively to others.
If there is one thing I state very often on this thread is getting rid of Dog stocks [and Deadstocks that went to become dog stocks] early on to not only avoid further losses but also the Opportunity Costs that people don't normally count. Opportunity Cost is what you forgo getting that you could have received. For example, if I lend a $1000 to my son interest free, the opportunity cost is 1.9% interest I could have received risk free from the bank. So in using the example of Buddy Tech (BUD), if you had sold post suspension on 19 Feb 18 and say the value of your holdings at 19.5c was for simplicity sake $100k. Had you continued to hold till this very day, that $100k has eroded to $22.5k (a 77% loss ), during roughly the same time the ASX gained 19%; now if that 100k was liquidated from BUD on 19 Feb 18 and invested in say APX, that $100k would have been $353k , 15x more! Of course this is easy to say and difficult to do but the point of Opportunity Cost can't be more stark than this. Even if the $100k had been invested in an ASX ETF, you would be having $119k instead of $22k. As I always say, a Dog of a stock will show you more fleas as time progresses.
You would also often hear me say Doing Nothing is Doing Something.
It is very true. An example, if you see someone needing help and you are in the position to do so but decide not to do anything, and the person say dies, you could have had the opportunity to change the destiny of that person. Your decision to do nothing may have resulted in his/her death.
You can either consciously do nothing or unconsciously do nothing. Both are just as defining in determining the outcome you could face, not making a decision is easy and that is the route most would take (until it is too late). Consciously do nothing is like not selling and like the Americans say 'getting out of harm's way' of a stock that is facing a downdraft and fast becoming a dog. It is called hope and denial, both working in tandem with each other. Unconsciously do nothing is like the passive investor who steadfastly buys and hold a stock for long term collecting dividend under the mainstream mantra that 'long term investing and you'd be right mate'' without consciously understanding the dynamics of the market [ if there is a 50% fall in the market over a protracted period of say 2-3 years, do you have enough time to recover your capital over the remainder part of your retired life ; and that this time is different in that the equity market is now one giant casino with deadly made up instruments of mass destruction ] and company fundamentals [ how once held monopolies like banks and Telstra now come under competitive seige from market disrupters ]
