Thursday, July 30, 2009

Waiting for the stockmarket to bottom

A few months ago, when the ST index was around 1,500, some people commented that they will buy when it reached 1,200. That was their target for the stockmarket to bottom out.

But, it did not reach that level. Instead, the ST index had recovered 1,100 points (more than 70%) over the past few months. Those who waited for the stockmarket to reach 1,200 missed the boat.

Lesson 1: Do not be greedy. If you find the stocks to be of good value, you should buy and keep for the long term.

I bought my shares when the stockmarket was around 2,500. I did not sell the shares when they lost nearly half of its value. I kept them for the long term. These shares have since recovered in value (nearly).

Lesson 2: Avoid trying to catch the right time to sell or buy. If you are not sure, keep the shares for the long term, provided that they are blue chip shares. Do not sell, when the share price is depressed due to liquidity or fear.


Chris said...

This are other ways (lessons) besides what Mr Tan mentioned that has been useful to me:
1.) Do cost averaging by buying into strong stocks every month.
2.) Buy when market volume gets very low. Thats usually the point when everyone is out of the market. For recent years, volume <600 million is consider very low.
3.) Vice versa, for short term view, sell when volume hits its peak usually accompanied with penny stock play.
4.) Sell your holdings when you have acheive your target.
5.) For stocks - depending on your risk appetite, have a balance of blue chips, mid caps and second/third tier stocks.
6.) Diversity averages out industry cycles.
7.) Stock market crashes (Real serious crashes) happens on average every 10-11 years. When it does happen, hold your breath and take some risk. Remember that nothing comes for free without taking some risks.

Lastly, please invest only money you are willing to lose. As it goes, stocks can always become 0.00c no matter how good it is.

I hope everyone is having a prosperous trading year!

Anonymous said...

I read an article and would like to post the following extract:

"However, as is the tendency with sudden declines, bargain hunters entered the market too aggressively. On relatively thin trading levels, this led to a steep rise in stock prices which, in turn, drew in investors who feared being left behind. A steep bear market
rally was in place. This mirrored the pattern of the Great Depression, when the initial crash was followed by a 68 percent rally in 1930. But after that rally had fizzled, stocks then declined by an astounding 86 percent over the two subsequent years."

Anonymous said...

yes, this may be a bear trap so it is too early to conclude!

Anonymous said...

I missed the rally and one of the stupid idiot agent from Mxxxx urge me to switch all my OA, SA & Cash investment to cash funds in March this year and told me that downside is more. I am still very mad at his bloody stupid move as I do not know much about investing and will never trust such agent anymore.

Anonymous said...

Anon 3.18pm,
That is speaking from hindsight. What happens if the market is really going down further?
The fact is NOBODY knows what is next; Up or Down.

Anonymous said...

I'm not sure what it means by bear long as theres profit to make why not? If everyone knows it is a bear trap, buy and sell for short term makes sense... a bear trap for 5 months?? you would have lots of time to exit the market if you feel so.

The stock market is forward looking (9 - 12 months) and not based on what is happening today. Thats why everyone buys up the price to what they believe it will be 1 to 2 years ahead. Similarly the price crash occured as everyone believed that stocks are only worth 10-20% of their value by estimating perpetual losses.

My take is, you cannot only enter the market when everything is rosy as that will be the time when prices have already move to all time highs.

As long as you maintain some valuation strategy and keep to cost averaging, in the long run, averaging during a crisis is better than averaging during a bull market.

So bear trap? A lot of people keeps saying that (what does it really mean in today's context?). I'll make money by taking short positions during this period and also maintaining long position (by cost averaging) on blue chip stocks.

(btw, i neither recommend a buy or sell at this point in time).

Anonymous said...

Being new at trading, My learning point is, I was expecting too much without studying the "rules" of trading... I too was expecting that target of 1200, to move into the market... I could have bought some shares at 1600 and if it did move down continue to average it to my target price of 1200 and if it still continued down... just hold my portfolio with no further purchases...Yes, I had missed this move..but I have learned... it every up move there is a retrancement... will wait for that, to consider an entry... but at the same token... I am not convinced with the current euphoria!

Robert Tan said...

The stock market is influenced by both fundamentals as well as sentiments.

At times, when fundamentals turn bad, sentiments also turn negative. Conversely, when fundamentals turn positve, sentiments also become positive. Unfortunately, the market is not always perfect/efficient, as some economists or finance people seem to think/teach. Sentiments can cause markets prices to overshoot fundamentals, both on the downwards as well as upwards side in the short to medium term.(However, in the long term, prices should reflect fundamentals - eventually...

Therefore, it would be better to buy when one sees value, ie, prices have dropped below(better still well below) the intrinsic values of the shares. Conversely, one should sell when prices overshoot values significantly. Unfortunately, this requires effort in researching, studying the underlying values of the stocks, a clear head and nerves of steel in order not to be swayed by over despondency or over exuberance in the stock market. (This may also mean that one must have the holding power, ie, avoid margin trading!)

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