25 November 2011

Tips on Investing in Stock Market while it is very volatile

In my own opinion, there are some ways to invest in Stock Market while the market is very volatile (means that the stock price can swing very sifinicantly).

1. Try to Buy a Blue Chip Stock. The definition of Blue Chip Stock here means:
  • Has a very good track record that can go through the downturn of the economy. For example, you can find the largest market cap Stock in the stock exchange. 
  • Has proven and consistent dividend policy to the shareholders. It is unwise to sell the shares at the bottom of the market. So dividend can give you some recurring income to survive while waiting for the market to bounce back
  • Less risk on the exposure of the financial / debt. With a strong Balance Sheet (e.g. Good Interest Coverage Ratio, Good Current Ratio, Low Debt to Equity Ratio, Good Cash Flow etc)
  • "Near to Monopoly" Status due to its "Branding" Power. Normally Blue Chip Stocks enjoy a higher shares premium among its peers as they have bargaining power against their suppliers as well as Customers. 
2. Dollar Cost Averaging.
  • It is very good to apply Dollar Cost Averaging during the volatile market, as you can purchase stocks at different timing so that you can average down your buy price and enjoy higher return if you have enough holding power as well as the belief that your company can perform better than this year few years later. 
3. Diversify your asset classes
  • A good portfolio managment means that you invest into a different asset classes so that the market volatility will give you a lesser impact. For example, you can set aside certain amount of the investable fund into Fixed Deposit, Commodities, Bonds, Equity, Property and Private Equity etc. As long as you know how the optimal asset class allocation, then you will be able to meet your short term goal and long term goal. 
4. Keep on doing Homework
  • When the market is quiet, it is good to do more homework and find out a good stock that worth to be invested. Try to set your long term goal (for example, to achieve 100% within 3 years) and short term goal (for example, the dividend you need to survive in your daily activities). Once you set your goal, then you can put the stocks in your watch list and action when it dropped below your buy target or rise above your sell target. A self-discipline is important for you to stay through the market volatility. 
Let me know how can I help on your stock investment. I can be contacted via jackphang@jackphanginvestment.com. Have a nice day.

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