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When to be fully invested in the stock market?

Monday, June 17, 2013

I have been trying to catch up with many things after coming back from a working trip. One thing I have been trying to do is to get up to speed with reading The Business Times and reports from analysts.

It seems that 2,700 on the STI is something that many are touting as the level with strong support and some say that at that level the PER is very low which makes stocks a bargain. Some went as far as to say that if the STI should go to 2,700, they would be fully invested.

Personally, I do not know if the STI will go to 2,700 and although I will acknowledge that it is a level with strong technical support, I will also say that I do not know if the support will hold or break. So, does that mean that I will not be fully invested at 2,700 points? If I can help it, I won't be.

As prices fall, all else remaining equal, there is better value for money everywhere. If there is better value for money, why don't we buy? Simple, people expect prices to fall more. So, they will keep waiting. 

And if prices go up, they will tell themselves they should have bought but hope that prices would fall again so that they get to buy. If prices should fall again, they would most likely buy. This is why double bottoms are such powerful reversal patterns.

However, double bottoms do not always take place.

I am buying as prices retreat to supports but in smallish amounts. It is hard to say how much more and how long more prices would fall. So, unless we have an unlimited amount of cash, our own cash, we want to pace our purchases.


If our cash is very limited, it would make more sense to wait for the dust to settle and for sentiments to turn more positive before going back into the fray. 


Use charts to help in this respect. Look out for reversal patterns and positive divergences. Of course, bear in mind that charts are about probability and not certainty.

Having said this, if our investments are fundamentally sound and if we are not investing with money that we cannot afford to lose or money that is not ours, simply holding on and riding out the turbulence in the stock market isn't all that bad an idea now.

With central banks around the world bent on getting their economies back on their feet, the likelihood that things will improve is greater than otherwise. Businesses will benefit and stocks will reflect that. 

If I should be wrong and the whole world plunges back into recession or worse, things are pretty much hopeless then as the financial system as we know it would collapse and we could very well see a big reset that some gurus like Marc Faber have talked about.

So, am I being an optimist? 

No, I am being a pragmatist. 





Since chances are that the global economy will improve, given time, it pays to stay invested. 

However, recognising that things could take a bit more time to improve, it is not a good idea to be fully invested. Not now and not if the STI goes to 2,700.

When to be fully invested in the stock market? Probably never.

Related posts:
1. If we want peace, prepare for war.
2. AK71's simple strategy.
3. CPF or SGS?
4. Art of wealth accumulation.
5. Books for FA and TA.

23 comments:

blauereiter said...

Hey Mr Ak71, thanks for updating us with the latest market sentiments. Your views have put me a little more at ease.

I remember you saying you weren't looking forward to your working trip, hopefully it wasn't too bad ! :]

Phileas.Wind said...

Yes, probably never,
theoretically, i think an investor should only be fully vested when it's the bottom. but this can never be sure.

AK71 said...

Hi blauereiter,

Just thinking out loud. ;)

The trip? Can't complain. Could be worse, I guess. Thanks for asking.

AK71 said...

Hi Phileas,

Very philosophical. Indeed so.

We can only call a bottom when it has come and gone! ;)

JCK said...

Is this a Chinese time bomb ticking which will elevate the world's financial woes?

http://www.telegraph.co.uk/finance/china-business/10123507/Fitch-says-China-credit-bubble-unprecedented-in-modern-world-history.html


"China's shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned. "

"Wei Yao from Societe Generale says the debt service ratio of Chinese companies has reached 30pc of GDP – the typical threshold for financial crises -- and many will not be able to pay interest or repay principal. She warned that the country could be on the verge of a "Minsky Moment", when the debt pyramid collapses under its own weight. "The debt snowball is getting bigger and bigger, without contributing to real activity," she said. "

"The (China Securities) journal said total credit in China's financial system may be as high as 221pc of GDP, jumping almost eightfold over the last decade, and warned that companies will have to fork out $1 trillion in interest payments alone this year. "Chinese corporate debt burdens are much higher than those of other economies. Much of the liquidity is being used to repay debt and not to finance output," it said. "

AK71 said...

Hi JCK,

There is some truth in the report. Look at Sound Global's senior notes which pay a coupon in excess of 10%. It hobbles the group's numbers.

Could China implode and drag the entire world with it? Nowhere is safe then.

Most probably, the key is to be selective and to be more conservative in today's environment. Compared to being 100% in cash, this is the lesser evil, isn't it?

Tien Song Chuan said...

Answer: Never.
There are so many things to invest in: Gold,Bonds,Property,Saving Accounts etc.
Recently I come across a book : The Permanent Portfolio, in which it says , the best strategy is to maintain 25% cash, 25% gold, 25% bond, 25% stocks. Very logical approach.

AK71 said...

Hi Tien,

That is one school of thought. Through the ups and downs in the economy, there is a higher level of safety diversifying across asset classes or so the wisdom goes.

Singapore Man of Leisure said...

Welcome back AK!

LOL!

Those who say if STI drops to 2700 they will go all in by being 100% invested, unless they started recently from Jan 13 onwards, all they need is to ask what they DID when STI hits 2700 during 2012 ;)

Ouch!

AK71 said...

Hi SMOL,

Kamsiah you but with the air here the way it is, I should not have come back. However, if I had extended my trip, I would be up to my eyebrows in work when I return later. Ah, such is life.

There are some rather rational arguments why we should be fully invested if STI should sink to 2700 and as the arguments are from both the FA and TA camps, perhaps these guys are right. No? ;)

Poh Soon said...

The reality is that when STI really drop to 2700, a lot more ppl will be even more scare and wondering whether it will drop even lower. Some who had not divested might even suck thumb and worried on their paper loss.

Anyway, the current drop give me a good opportunity to buy back the LMIR that I sold. :D

AK71 said...

Hi Poh Soon,

Indeed, it takes some mental rewiring to think differently from the crowd. ;)

Kelvin said...

Hi AK71,

Wise words from a wise investor!!! I greatly enjoyed this read and I share the same sentiments with you ^^

Cheers

JJ said...

Dear AK.... welcome home! Home like genting hor!

STI rocket wor... me kiasi never pick up anything:/

Take care all.....



AK71 said...

Hi Kelvin,

I don't know if being pragmatic has anything to do with wisdom but I like to have reserves to fall back on if things get nasty. :)

AK71 said...

Hi JJ,

Genting? You think so?

The only thing in common between Genting and Singapore now is the reduced visibility although the adjectives used are "misty" in the case of the former and "hazy" in the case of the latter. ;p

Well, not picking up anything in the recent correction is not a bad strategy per se. To err on the side of caution when we are unsure will help to give us a peace of mind which is priceless. ;)

Jane said...

Is it a good time to buy gold? I suppose the easiest way to buy it will be in the form of gold chains, right? What is the difference between buying form shops like Value Max etc and jewellery shops?

AK71 said...

Hi Jane,

Unless you are buying gold for wearing, you should be buying investment grade gold (i.e. bullions). Just make a trip to UOB Plaza and go to the basement where they sell these.

Buying gold bullion now is really buying insurance. So, anytime is a good time to buy insurance. It is just a matter of paying more or less premium.

Tien Song Chuan said...

If you buy gold bullion, you need to rent a safe deposit box to keep those, am I right?

AK71 said...

Hi Tien,

I have a safe deposit box in UOB but it is too much work to visit regularly. So, I keep my gold and silver bullion coins at home in a biscuit tin. ;p

SOLIDCORE said...

Hi AK,

Gold dropped 6% yesterday which is a huge one day drop. SReits are looking more attractive with all these selling going around, with some counters nearing their NAV. Perhaps a time to buy/ hedge could appear.

However, your advice on what is my motivation is very powerful and I intend to stick to it :)

AK71 said...

Hi Solidcore,

Mr. Market always overshoots whether it is to the upside or downside.

If AIMS AMP Capital Industrial REIT and Sabana REIT should see their unit prices declining to below NAV, I will be buying. :)

S-REITs: Are we asking the right questions?

AK71 said...

Reader:
Are you fully invested or waiting for pull back in the share market?

AK:
The last time I was fully invested was during the GFC. I used every single cent in my war chest. It was terrible. I felt very broke. Am I fully invested now? You say leh?

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