Why market timing is harder than investors think

Another quarter, another tale of the unexpected. Looking at the performance of financial markets over the past three months, I am struck by how little of what has happened was widely predicted at the beginning of April. The list of things I and others did not see coming is long.

One of the great advantages of writing a quarterly Investment Outlook is that I can check back on what I actually said, rather than relying on the false memories that hindsight provides. It is tempting to think that you knew it all along. That is rarely the case.

• Looking for personalised financial advice? Our advisory service can help you plan for your next step.

Three months ago, I concluded that the most important market driver was the outlook for the oil price. ‘The closure of the Strait of Hormuz represents one of the biggest economic shocks to the world in recent years’, I wrote. ‘Even if it re-opens relatively quickly, the fear is that a Pandora’s box has been opened…The word on everyone’s lips once again is stagflation.’

On April Fool’s Day, you would have had to pay $120 for a barrel of Brent crude oil. The price rose to $138 over the next two weeks. Today it is $76, right back where it stood before the US and Israel attacked Iran. So, yes, oil mattered. It is just that the path it took, and the response of the global economy to that, was not what we all expected.

• Get the latest market updates, ISA news and pension insights by email

Given that three months ago we were focused on the risk of an energy shock spilling out into the broader economy, the relative performance of the world’s principal stock markets has also come as a surprise. Exposure to oil and other commodities added to the case for investing in the UK, three months ago. At the same time, it argued for caution about one of the world’s big energy importers, Japan. Neither call has been right.

Over the past three months, £100 invested in the FTSE 100 has turned into £105, which is not a great return in the context of the spectacular profits more adventurous investors have enjoyed since April. And you would have had to be quick to capture even that. An investor who hesitated for just a couple of weeks until the middle of April is underwater today. Meanwhile, the same amount invested in Japan is worth £130.

As it happens, I am a big fan of the Japanese market. And the performance of the Nikkei 225 index is in large part a consequence of the declining cost of one of its biggest imports. It is just that no-one could have predicted it would work out this way. Like me, you may have been invested in Japanese shares for other good reasons - better corporate governance, strong wage growth, a healthy level of inflation. But let us not kid ourselves that we saw Japan at the top of the leaderboard at the end of June. We just got lucky.

Ditto emerging markets. Had you invested the £100 in a broad spread of developing country shares, you would have £120 today. You might be surprised to have a return four times that of an investment in the UK from an investment that is so geared to the health of global trade.

Likewise, if someone had told you three months ago that the AI boom would accelerate during the second quarter, with the Philadelphia Semiconductor index nearly doubling in the year to date, you might be surprised that the top ten stocks in the US market would have lost 6% of their value, around $2.3trn, just in the month of June. Or that the Magnificent Seven would be 3% down in the first half of the year, and 10% down in June alone.

Perhaps the biggest surprise of the past three months has been the slide in the price of gold. With the precious metal ending June around $4,000 an ounce, it has just completed its worst quarter in more than ten years. This was not in the script in early April, just weeks into the Gulf conflict, when gold’s traditional safe-haven characteristics might have been expected to take it back to its January high of over $5,500 an ounce.

The poor performance of gold can be explained in part by its inability to provide an income to investors. In an inflationary environment of rising interest rates and bond yields, the opportunity cost of holding gold is high. Interest-paying assets like government bonds and cash are relatively attractive when rising prices argue for higher for longer interest rates.

What has been unexpected, however, is the way in which gold has behaved just like any other risk asset. In the latter stages of its remarkable two year run from $2,000 an ounce at the start of 2024, gold was driven by nothing more than speculation and FOMO. Perhaps unsurprisingly, when semiconductors and memory became flavour of the month, gold, and its predecessor bitcoin, failed to get a look in.

Three months ago, you might quite sensibly have invested in the UK to capture its heavy weighting to BP and Shell. You might have remembered the oil shocks of the 1970s and steered clear of Japan. You might have avoided AI stocks for fear of a shortage of its most precious input - energy. And you might have bought gold to protect yourself from heightened geo-political uncertainty. If you had done all of this, your logic would have been impeccable. And you would have been wrong.

The more I study markets, the more I understand that for us ordinary mortals, trying to time the ups and downs of the market is simply too hard - and too stressful. My gold and UK investments have been disappointing. But my Japan and emerging markets have been rewarding. Overall, I am happy, and I have not had to make a single decision all quarter. I have simply been happily diversified throughout. And that is how I intend to stay.

This article was originally published in The Telegraph.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: Real assets: options to protect your portfolio from inflation
• Read: 5 stocks to watch in July
• Read: Top 10 best-selling ISA and SIPP funds of 2026

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Direct shareholdings should generally form part of a well-diversified portfolio of other investments. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.