Tuesday, February 4, 2014

Are you good at timing the market?

Since the start of 2014, STI has fallen by about 6.6% from 3174.65 on 2 Jan to close at 2965.8 today. Market sentiments were spooked by various factors, from QE tapering to concerns on emerging market economies and the recent weak US manufacturing data.



With the declining market, the burning questions on the minds of investors and traders alike will be: With the expectation that price may drop further, should I cash out to preserve capital and pickup the stocks cheaper later down the road, or hold-on to the depreciating stocks offsetting the dividends received?

Recently, I happened to review some of the past trade record that I have done when I was still actively trading for price movement. The 1st thought that went to my mind was: Had I held on to any of the trades to today, I would be sitting on nice capital gain and outstanding yield on companies with strong fundamentals.




Taking StarHub for example (if my memory serves me well), I have entered my position at price of $2.04 on 1st Oct 2009 when the stock price was affected by negative news that StarHub had lost its EPL rights to SingTel. The impact of the negative news was strong as investors believed the fundamental (earnings) would be affected. I subsequently sold my shares at a loss of $519 after about 3 weeks when the price broke $2 support at $1.95 Had I held onto the stocks till today, I would be sitting on an impressive capital gain of 105% with 9.8% dividend yield!

This is not to say that StarHub may fall back to $2 range, but the point is it's anybody's guess as to whether Singapore shares will continue falling. And since I am lousy at predicting the bottom of the correction, I decide to stay invested with warchest ready to take advantage of the market decline.

Looking at the share prices then in 2009 and comparing with the prices today (even after the 6.6% decline), the "market correction" is put in a better perspective. 6.6% is nothing in a bear market!

The importance of investment strategies cannot be emphasized more:
1. Not to be fully invested. (Do not invest with money you cannot afford to lose)
2. Diversify (Unless you can pick stocks like Warren Buffett)

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