Monday, November 30, 2015

My Strategy (Update) During This Market Downturn

I wrote an article some months back about how I was planning to utilize my warchest strategy should the market trend lower. You can view them here. Since then, the market has gone down at one point to less than 2800 and many people were scratching their heads when would be a good time to enter.
 
 
 
 
Timing the market may look easy to the common naysayers. Some would look for macro events to take place while others are simply looking for directions to take place. Either way, it almost seems that one can predict the event that things would get cheaper before they decide to nibble on the stocks they were eyeing.
 
In the article I wrote previously, I mentioned that cash represents a call option for investors to purchase companies at a cheaper valuation when Mr. Market misprices them occasionally. Many people shun the value of cash at face value as they tend to erode over time due to inflation so they aren't willing to hold cash for a long period of time but I look at it in a balance. Sure, it isn't cool to hold cold hard physical cash but who wouldn't want to pounce on the opportunity given when it is time to do so.
 
On the other side, I also wanted to talk about opportunity loss. Missing a good opportunity for an entry is to me as bad as getting an entry at the highest. This is probably the reason why scaling the purchase and understanding the company's valuation becomes all the more important because good companies will eventually rebound back in value, even though they may go lower in the shorter term due to market weakness.
 
I personally do not advocate myself timing and entering the market at the bottom as part of my strategy and I probably do not have clue to where is the bottom anyway, but what I do know is that over the longer term, the stocks I am holding will be one which will rise in value and support my lifestyle till the day I leave this earth. At least, I have to make sure that conviction stays true. For instance, when the market went lower at below 2800, I have used quite a portion of my warchest to take opportunity of stocks that I think has value proposition. If it goes down further, then I would activate my next batches of purchase and this will continue. The strategy is clear, so the fear of missing out is exacerbated.
 
There are many other bloggers who are advocating different strategy that fits their own profile. Some like consistent dividend paying companies while others have a lower threshold before they start buying in. Regardless, I think the common theme is to have a strategy in place so that you won't panic when the real war begins. When that happens, you are already prepared and the battle is won halfway.

8 comments:

  1. I start to take small position first and then double down at each 10% drop with a large enough war chest. I start to take position when the bad news are at the peak. For example in the Aug-Sep rout my broker said market is bottomless all is gloomed and doomed.

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    1. Hi Siew Mun

      That's interesting.

      I have a slightly different approach in the sense that I like to take a larger position at first entry because I want to make sure that my entry conviction stays true which is the reason why I'd like to build from a larger then smaller over time. But having cash ready is always handy.

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  2. Hi B

    Will you be looking to average down your positions in kingsmen creative?

    Alfred

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    1. Hi Alfred

      At the moment, I'm not looking to add too much into Kingsmen yet as I have a rather large position and I want to wait for their development to recover, though I think a lot of the bad news have been priced in the share price.

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    2. Hi B,

      Will you be doing a blog post on their latest quarter results?

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    3. Hi Jalan Jalan

      Not at this time, I think.

      I've however had a chat with a few fellow bloggers who are adept at the company so I'm still keeping a tab on their developments.

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  3. Couldn't agree more with having a well-defined strategy in place before big changes happen in the market! I personally like your approach, and would be doing something similar, if only I had some extra capital to invest as the market falls... although I do have a history of diving in too early, so perhaps having some capital restrictions is a blessing in disguise these days!

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    1. Hi Jason

      I guess it always work both sides isn't it :) Having both strategies will help us adopt to an environment which will suit the investor better, so cash or no cash, it's still the same objective at the end of the day.

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