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Sell stocks now and wait to buy back lower?

Friday, November 21, 2014

This blog post is in reply to a question posed by a reader, Poh Huat.

Read Poh Huat's question: here.

Saruman, the White?

Hi Poh Huat,

If we can tell accurately when the market is going to crash, it would make sense to sell everything before that. If we can tell accurately when the market has hit bottom, it would make sense to throw in everything including the kitchen sink. ;p

Question: Can we tell accurately? This is where we try to make sense of the charts using technical analysis and I dabble a bit with this as you probably know.

However, I cannot say that I know with a great degree of accuracy if the market has peaked or bottomed. It is quite obvious from the moves I made which I blogged about.

What matters more to me is not to overpay for any investment. By this, I do not mean that if I pay $1 for a stock and tomorrow it becomes 90c, I have overpaid.

I mean buying at a price which I think the stock is worth or at a price less than what I think the stock is worth. If I have not overpaid, I think it is good to hold.

Of course, prices could go lower and as long as we have not overpaid, it means that the stock has become more undervalued. So, we should, in fact, consider buying more.

It is, therefore, important to have a war chest ready. It would be quite miserable to see all the undervalued stocks in a bear market but have no money to buy.

I hope this answers your question. :)

Related posts:
1. If we want peace, be prepared for war.
2. When to BUY, HOLD or SELL?
3. STE's story: Investment strategy.
4. Revisiting my strategy with Mr. Munger.
5. When to be fully invested?


SMK said...

Sembcorp looks about right, right now. I'm close to biting.

Unknown said...


Thank you for your enlightenment and the others related post with regards to stock investment.

Poh Huat

AK71 said...

... wondering if it's good to liquidate some and wait for a year or two and enter again during the crash.

Alamak. Dun ask me so difficult question. I stress.

Also see A great crash is coming and I am ready.

AK71 said...

From my FB wall:

Cheow Xunchen:
If stock market is now at 100 (just a hypothetical figure), and you cash out to wait for the next crash, in the time you spent waiting, it's possible that it could rise more than it would eventually drop.
E.g. If it goes to 200 before crashing to 150, you'd still have been better off holding from 100. You might think you're a genius because you have a lot of cash to buy stocks during the crash to 150 but someone who remained invested since 100 still performed better than you haha.

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