Timing The Market with the 3 Wells

Warren Buffett said investing is "laying out money today, to get more back in the future'. So there is a time element to investing.  

Throughout the market cycle, a constant question an investor asks themselves is how should I allocate my funds when everything is expensive. It can be summarised as buy low sell high, but when it comes to actually allocating the question is how much at each point in time. 

When I started investing I read lots of books about value investing, growth investing, technical analysis, quantitative investment, fundamental investing. I basically covered each style.  One thing that always annoyed me was after reading, they all seemed correct. This was also evident in many investors using different methods successfully, with no one style standing out. 

After much thinking I came to the conclusion that the key was - time.

That is why time plays a critical role in the development and implementation of our 3 Wells program.

By way of example, the CAPE is currently 39. A long term investor should likely have a low overall allocation to stocks given this valuation and the evidence that it will deliver low returns over the next decade. 

That can be frustrating when holding a lot of cash. 

Both Wells 2 and 3 have made money but with a low allocation meaning it can look impressive in percentage terms but not absolute dollar returns since we take a conservative approach when the CAPE is extremely high.

But if you are able to think in shorter timeframes, you can reason there is no constraint on making money in the short term while waiting for the long term returns to become more favourable. 

So using a different Wells strategy, we can put some cash in our Well One strategy to make money while we wait for our Well 2 and 3 strategies to present more attractive opportunities. 

So imagine needing $100,000 annually for expenses. Well 2 and 3 may only make 50% because they are conservatively allocated thanks to a high CAPE. 

This is where Well 1 delivers be generating shorter term returns which assist in covering current expenses.

You can make returns in a constant manner if you think differently about time. 

Most investors get caught up in labels or methods. Note how Buffett vehemently defends his style of investing against all others. Jim Simons was the most famous and wealthiest short term quantitative trader. But the reality is you don’t have to be Warren Buffett or Jim Simon. In fact, there is a way to be both if you care to think just a little bit differently.