07 September 2012

It is very hard to time the market

When I was thinking to close some position in my stock portfolio due to recent market down, US market just up yesterday. It made me realize that it is really not easy for me to time the market. You may correct in certain time, but you may loss some opportunities along the way when you try to time the market. And it is really silly to make a disposal just due to expecting a lower entry point. Anyway, I am still learning on how to keep myself away from the stock market, so that I can still remain rational in making any investment decision.

It is really hard for me to set a proper asset allocation although I have learnt from my CFA programme. Once I am getting bigger loan from financial institution, it makes me feel uncomfortable to invest in volatile asset classes. In fact, it may deter me from achieving higher return. Anyway, I have to try to change my mind to be more positive thinking, so that I would not be too afraid to take on loan to make a good long term investment.

As you can see from recent market activities, it do really create a lot of investment opportunity, the problem is that you have to set your investment horizon to a longer period, such as 10 years or even 20 years. It would be similar to real estate investment, where you have to be prepared to hold it long enough to get a better return.

The good thing in investing in stock market in Singapore & Malaysia is that you do not need to pay tax for the capital gain. So I think we should use this opportunity to accumulate wealth in faster and better way. Of course, you have to think about your risk & return profile. I would advice you to invest in lower beta investment if you cannot afford too high price volatility.

To conclude, when you make a long term investment, do not try to time the market. In fact, focus on the intrinsic value of the investment. Try to pay lower than intrinsic value, at least 30% or below. It is the margin of safety you set aside to prevent you from getting too bad hurt from the stock market.

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