Tuesday, July 26, 2016

Uncertainty Is An Investor's Best Friend

The best time to invest in the market is when there are full of uncertainties surrounding the sentiments of the market and the company itself.

Given how interconnected we are in today's global world, the only certainty is that nothing is certain.




Think a few months back when there were signs of talk from media regarding the Chinese economy going for a hard landing, stock market across the world crashes down massively, prompting circuit breaker in a few markets.

Think a few months back when everyone was touting a massive office oversupply which sends companies like Capitaland Commercial Trust (CCT) down to as low as $1.28 and Fraser Commercial Trust (FCOT) to as low as $1.16, no one seems interested to buy because the atmosphere was so gloomy. Kyith wrote a good article here on FCOT articulating his thoughts on the uncertainties when the share price hits $1.16 and he was not as prepared as he is today.

Those were the best moments to invest because the media continues to tout multiple spiral negative news which would work in investor's favor, pushing prices down spirally to a value investor's delight.

When things are more certain like today when investors are pretty certain that there will be no interest hike in the upcoming Fed meeting this week, we get prices looming at $1.52 for CCT, $1.35 for FCOT, $2.54 for Ascendas and $2.20 for CMT. Even Keppel DC reit went up 3% after going ex-dividend recently. 

That was a pretty uncommon sight.

Those are probably moments I would like to avoid because these are signs of exuberance where everyone are flocking to the same investment ideas. 

I think there are a few ways an investor could sensibly do at this point:


1.) Rebalance Your Portfolio

Portfolio management beats any other strategies when it comes to investment.

Ideally speaking, you do not need to split among the many asset classes the market offers out there. 

To me, there are only two asset class that matters at this point for such investment: Cash and Equities.

By allocating across a 80/20, 70/30 or 60/40 accordingly is up to an investor's appetite, but it does provide a sensible moment to protect our hard earned capital if the share price of equities goes even higher.


2.) Building A Cash / Bond Ladder

Cash is a very precious callable option one can utilize during periods when they need them most.

Alternatively, an investor can also build upon a bond ladder (e.g SSB) by subscribing to short to medium term bonds with different immediate maturity date. This not only provides a decent return on investment while waiting but also psychologically play a very important role in ensuring decent portfolio management and utilization of those cash across a stretch period.


3.) Research Deep Into The Companies You are Aiming For

This is probably the best time to do research on companies you wish to pounce on opportunities.

By having a deep understanding of the business and risks the company entails, an investor would be in a good position to take on opportunities during a market correction or when there are fear in the market.

When the atmosphere is so ugly that everyone is touting a sell-off, this should be one of the few moments to shine, provided you are ready to action and become the exception.


4.) Ignore CNN / CNBC / Bloomberg News

I'd say take advantage of the noise provided from these newscasters because they provide an amplified glory or gloomy news depending on where the market is.

There are many people on the street that depends on these news to make decision and psychologically it will infuse emotional reaction which will bring about volatility in the market.


5.) Execution

This may seem the most common sense but it's actually the hardest to execute on an action plan and strategies when the real thing hits the fan.

Regardless of whether your strategies is to invest or do nothing, these are execution which will make or break on your success towards investing in the stock market.

Even if you have the simplest strategies of waiting for a low hanging fruits during a deep market correction, that is still an execution worth mentioning because not many can appreciate or do that confidently.


19 comments:

  1. Quote : "To me, there are only two asset class that matters at this point for such investment: Cash and Equities."

    Simple asset allocation not necessary less effective. Let show this simple strategy is doable. :-)

    ReplyDelete
    Replies
    1. Uncle Cw

      Easy method big results :)

      Delete
  2. ignore the news?

    How about bloggers? Should we ignore?

    Maybe it's not ignore. We just need to be skeptical and filter accordingly!

    :-)

    ReplyDelete
    Replies
    1. Hi Rolf

      Yeah filter and take with a pinch of salt is the right word to put it ;) Bloggers? So many of them!!! They are noise as well ;)

      Delete
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