Tuesday, April 26, 2016

How Do You Position Yourself For A Sideway Market?

The STI market has not been in ferocious mood since last October when we witnessed a sharp drop from a high of 3,521 to a recent low of 2,520. Since then, the market have recovered slightly - moving up and down cautiously and consolidating without any sort of seriousness to show a longer uptrend or downtrend. 

While these movement in the market has lasted only a few months, we can sense a general cautiousness in the sentiments and at times frustrations because there isn't any particular indications where the market is heading. This can be seen from the fact that there are a rush towards the bond yield in the market and hence pushing yields lower.

As investors, it is very important that we stick to our strategies regardless of how the market reacts. Often, people forget that the market is irrational and may suddenly offers compelling opportunities for investors who are prepared to pounce on.

So how do I position myself during these periods of sideway market?




The first thing I would do is to review my portfolio asset allocation.

In the bigger scheme of things and to make things convenient, I would only consider liquid assets - cash and equities allocation. This means that I would exclude all other assets such as housing, CPF, gold, or anything else that is not liquid.

Cash is an important component of my strategy and I would always try to keep some cash allocation available because you never know what the market might surprise you with. Having said that, I have been allocating more cash into buying more equity recently as first I believe the market is relatively cheap and second my cashflow conditions have improved for the better. This allows me to buy companies at regular interval without needing to time the market as the latter makes it very difficult to predict, especially since we can be subjected to hindsight bias from the recent low in Feb. By doing this, I am trying to take the psychological aspect (hardest aspect of investing) out of the way.

A sideway market is also a mental test to one's patience because often you have to do things you are not comfortable with in order to get better. Sometimes, this can mean doing nothing at all for a longer period of time while observing the market. If you look at my monthly transactions each month, you'd see that I seldom have any zero transaction in a given month. Having said that, I would not buy or accumulate for the sake of doing so if I knew that the company is overvalued. I think that would be very silly.

Last but not least, I'll also continue to review the position I have, keeping tabs on any latest development while keeping fresh information abreast. This includes browsing their daily announcement, analyzing their quarterly announcement and attending the annual general meeting if schedule permits. I think this is what most investors are already doing so this shouldn't be anything new.


What about you? How do you position yourself during these period of time?


5 comments:

  1. I have a wish list of stocks that I want to buy. When the price drops, I buy them. Otherwise, I wait. I invest also in dividend stocks of overseas market. So,there is more going on for me.

    RN

    ReplyDelete
    Replies
    1. Hi RN

      That is also my plan.

      Like you, I have a clear idea of what I wanted to buy so it's a rather straightforward process for me, and us :)

      Delete
  2. Building up my war chest while waiting for the next opportunity. Most REITs need refinance in near term thus a war chest might be handy in case of rights issue.

    ReplyDelete
    Replies
    1. Hi Sweet Retirement

      Yeah it is always good to have cash on the sideline in case these Reits ask for rights issue. And hopefully it won't happen so often ;)

      Delete
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