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Tuesday, September 29, 2015

The Psychological Problem of Waiting

Earlier in the month, I wrote an article (here) about how I was going to utilize my funds in a bear downturn market scenarios. Since then, the market has somewhat presented me with an opportunity to add on some of the great counters at a rather attractive price which I excitedly add on into the portfolio. I'll share some of these buys when I finish consolidating and start to write my October portfolio in a few weeks time.
 
For me, the strategy was simple.
 
I had a strategy in place to how I am going to approach the bear market and focus on it. I had earlier shared some of these strategies which are exclusively mine and could be different from any individuals (disclaimer) but the message was clear. Have a plan, sit back and enjoy the show.
 
In summary, I have appended my strategies as follows:
 
1.) Research on the companies in your watchlist way before hand.
 
2.) Focus on companies which exhibit strong earnings and balance sheet and are trading at attractive valuations.
 
3.) Ensure to phase out the purchase such that liquidity will not remain an issue.
 
4.) Continue to monitor on personal incoming cashflow (monthly salary/bonus/dividends) for additional liquidity buffer.
 
 
 
 
The Psychological Problem of Waiting
 
For some reason, there are always a group of people who are going to wait for a better entry price and play the waiting game. I have no issue if that person has a plan in mind or perhaps are waiting for an even better valuations but for most of the cases these are usually not the case.
 
The problem of sitting in cash and just waiting for a "better" entry is really about the psychological mind games that isn't going to work out well for the investors. We are not assuming a full binary decision of all-in versus all-out in this instance but the problem with mindless waiting is that you as investors are never going to be comfortable in the market for as long as the market rises or falls.
 
Every investors are looking for an opportunity of a market correction so that they can purchase the stock at a cheaper price for the same valuation. But when the market does go down, it usually tempt the investor to change his strategy by shifting the goal post further and further away from the reality. The longer this plays out, the harder it is for the investors to make a decision to enter the market. This happens a lot that when stocks fall, people think that they might as well wait because stocks are going to get cheaper the next day.
 
When we were at the peak of the market not too far away from today the past couple of months, it is easy to look back on the depth of the market crisis and think how we are going to deploy the strategies when opportunities arise. However, when we come to real time, everyone realises it isn't an easy decision and history would prove again that people will chase after stocks only when it moves up and trading at higher valuation.

What about you? Are you one of those who finds it difficult psychologically in the market?

14 comments:

  1. This comment has been removed by the author.

    ReplyDelete
  2. Hi B,

    Great article. I have the exact sentiments as you.

    I think when people feel uncomfortable in a falling market, their cognitive bias will reason it out as "It will get cheaper, let it fall" so that they can delay taking appropriate action but seem 'prudent' at the same time.

    On the other hand, an over-aggressive buying approach may also leave you dry later on.

    Like u said... it's not an ALL-IN decision.

    ReplyDelete
    Replies
    1. Hi Jerry

      Thanks for leaving your comment.

      You are right. People who feel uncomfortable in a falling market do so because they have not prepared themselves sufficiently before they invest in the market. These are the same people who probably doesn't have plan on what they should do during a prolong bear and will only follow the herd once there are directions given.

      Delete
  3. Ha! Ha!
    It's always better to buy too early and sell too early than to be a deer head on facing a motor-car in the dark.

    ReplyDelete
    Replies
    1. Hi Temperament

      Buy too early is ok, unless if one buys too high. Lol

      Delete
  4. No problem with buying low but need war chest and buy in nibbles month by month (and assuming about 1 year for market to drop fully).
    However, bad at selling high - hence, mainly buy dividend stocks of good (and if possible, growing) companies so that just buy and hold for dividends.

    ReplyDelete
    Replies
    1. Hi Anonymous

      1 Year liquidity is probably a good gauge to last for a bear market. It's not all doom and gloom, after all when market recovers, savy investors know they got a good deal.

      Delete
  5. Hi B,

    You do describe a very challenging to overcome bias here. We humans like safety over risk resulting in procrastination..

    In this low-interest environment cash has now become so plentiful (ok, not for everyone but for society as a whole) that it has become almost meaningless. That is precisely why we need to put any available money we might have to work.

    Doing nothing or leaving excess money (beyond our 6 months living expenses) in a Fixed Deposit is no longer an option unless you enjoy watching your cash diminish in value. It is simply too risky.

    I try not to wait until conditions are perfect before starting something. They never will be. Do it now.

    As the ice-hockey legend Wayne Gretzky remarked: "You miss 100% of the shots you don't take."

    ReplyDelete
    Replies
    1. Hi Tacomob

      Thank you for your comment.

      Time doesn't wait for people, do they? :D

      It seems that everyone is trying to time the bottom but it's pointless to do during the gfc and even now. We are never going to be able to guess where the market is heading next. Go for value, that's where the big money lies.

      Delete
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  7. Hi B,

    The best is to ignore what others is doing/saying!

    i tell myself when I start mentioning what others is doing oppose to me, subconsciously it means I m still not 100% sure what I will do. For me, It is a subconscious way of getting assurance within uncertainty, if I even mention somebody is doing this or that?

    Watched so many videos of so many top and successful investors (i like), they always only focus on themselves.During their interviews, they r consistent each time n never voluntary talk about other investor method is wrong!

    So many diff successful investors! All have diff strategies!

    For me, i know what I want clearly, focus on my own strategy, fine tune but be consistent eventually and continue learning. Who cares if I am wrong?

    Sometimes I ask myself cash as % of total portfolio or absolute amount? which matters more? I wonder if Berkshire 10% cash of market cap is how much? My 50% is how much?

    ReplyDelete
    Replies
    1. Hi Rolf

      Subconsciously we are always doing what we think the others wanted us to do.

      The truth is like you said, it is better to put on the earphone and treat all these as noises. See what you want to see, hear what you want to hear, Touch the inner, believe in yourself :)

      Delete
  8. Many investors are hindered by their emotions. They are always on the 'waiting list for success'. If we want something, we must have a plan and stick to it. We need conviction when we are investing.

    ReplyDelete
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