Market cycles and private equity: Does long-term buy and hold strategy still hold significance?

26/10/2021 | by Khaled Al Saleh


Stock market

During times of extreme euphoria and irrational exuberance, investors sometimes tend to forget that markets move in cycles, irrespective of whether it is a bear or a bull market. We are currently in the midst of the strongest bull market ever witnessed by investors. The S&P 500 - which tracks the largest 500 companies in the U.S. market - is up 90.35% from its pandemic lows back in March 2020.

Some investors are worried that the markets have reached an interim top, evident by the number of hedges that have been increasing exponentially in recent months. This had led to investors diversifying their portfolios into other asset classes that might benefit once the stock market takes a breather. Some of these asset classes include commodities like oil, gold, and natural gas. Others prefer diversifying into real estate, while yet others are piling into bonds behind a backdrop of rising inflation and talks of the U.S. Federal Reserve tapering their bond purchasing program.

One asset class which has been quietly amassing a record number of investors is Private Equity. Global private equity funding in the first half of 2021 saw more than USD 288 billion invested, according to Crunchbase. That is up by over USD 100 billion compared to the previous half-year record that was set in the second half of 2020. Another 250 companies have joined the Crunchbase Unicorn Board, compared to 161 new unicorns for the whole of 2020. We here at Markaz value the aspect of diversification and the benefits associated with it through our investments in selective PE investments.

We have recently invested in the Fintech company Klarna, and are also in the process of identifying potential venture capital funds investments as well as early and growth stage private equity funds investments. As such, we continue to expand our pool of private equity investments here at Markaz, targeting a long-term investment horizon in which we avoid tactical and behavioral errors. History has shown that applying a long-term buy and hold strategy is more lucrative and usually yields higher returns than short-term frequent transactions.