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The Easiest Way to Avoid Losing Money in Investing

March 2009 was the nadir for financial markets around the world during the relatively recent Great Financial Crisis. By March 2013, many major market indexes around the world had already staged remarkable comebacks.

The S&P 500, an important gauge of the U.S. share market, returned more than 116% in that period; the Nikkei 225 and FTSE 100 (the S&P 500-equivalent for Japan and the U.K., respectively) had jumped by 59% and 76% in the same timeframe; even Singapore’s own SPDR STI ETF (SGX: ES3), the exchange-traded fund responsible for tracking Singapore’s market barometer, the Straits Times Index (SGX: ^STI), had more than doubled with a 110% return.

Given that it was broad-based market indexes which made such gains, it thus stands to reason that it would have been easy pickings for investors to make money in shares during that time.

But for some investors, even earning some profit would have been a tall order.

Meet the “guru”

Dennis Gartman writes The Gartman Letter, “a highly regarded daily macro-economic and trading-oriented newsletter read by the professional investment community worldwide.” On March 2009 (note the date), he set up a bunch of ETFs with the intention of having them be exposed to the trading strategies of The Gartman Letter.

Sadly, those ETFs were terminated on March 2013 (again, note the date) after losing their investors a bunch of money. One particular ETF, the E-Class Horizons Gartman ETF, which invested mostly in U.S. shares, saw its net asset value (NAV) per unit fall from US$10 at the time of inception to US$7.88 at the time of termination. The NAV of a fund is the value of all the investments it holds – for a fund to see a decline in its NAV is to basically have its investments lose value.

How could that have happened in the midst of such a powerful and broad-based rally in the U.S. share market? For an answer to that, we can turn to the way Gartman “invests.”

The crazy trader

As it turns out, Gartman is an incorrigible market-timer. In other words, he tries to flip in and out of financial assets in order to catch tops and bottoms – and he does so with alarming regularity.

The problem is that it is nigh on impossible to get short-term market movements right. The following tweet, courtesy of my colleague Morgan Housel, would be emblematic of just how often Gartman gets it wrong:

All that frenetic trading and jumping in and out of shares – that’s what has likely killed Gartman’s investing returns. And, that’s a lesson for investors.

Avoiding losses

The title of this article promised to give you, Foolish reader, the easiest way to avoid losing money while investing. And so here it is: We should invest for the long-term (and just to point out the obvious, it’s the exact opposite of what Gartman does). For those who know me, I’d likely sound like a broken record on this point – but, the truth always bears repeating: Time in the market is one of the individual investor’s greatest allies.

Studies have shown how over-trading has been a big culprit in destroying the individual investor’s returns. And with this Gartman example, even the returns of the “gurus” can fall prey to excessive trading. We’d all do well to bear this in mind.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing does not own shares in any companies mentioned.