We often heard colleagues or friends mentioning that they were right now on the sideline waiting to pounce aggressively into the stock market when the stock market crashed. It was as though they were seeking a revenge that the stock market owed to them for the past 18 years. There were also individuals trying to study the leading signs of past crashes as they were trying to draw parallels from the past crashes in hope to find a coming one for them to punt on. Then there was also another group trying to discourage the others from investing, quoting the reason that most of the major markets are trading at around their all-time high. Over the past few years, it was also quite common to come across people who mentioned in social media that they would get into the stock market only when the STI hit a low of 1,800 points. If all these people have been staying out of the market due to their respective reasons, they probably have missed out big time.
An article featured on the Sunday Time last week entitled “The time to invest is now.” As I read through article, I must say I agree with the writer 110%. The article revealed that a famous investor said the market was going to crash within a year in the midst of European crisis in 2011. Should we have followed that call and stay in cash, we would have lost plenty of opportunities hiccupped by stock markets from time to time in this relatively long rally from then till now.
One noteworthy point in the article is the following
a. If $100k were to stay in cash since 2011 till now, the return would have earned $300.38.
b. If the $100k were to invest in ST index, the return would have been $46,243.36.
c. If the same $100k were to invest in MSCI All-Country World Index, it would have made a return of $111,869.96 or a return of more than 110%.
Speaking from my own experience, we often thought that the timing was not right to invest, but after a few months, we regretted for not investing because stocks that we were interested in simply got higher. I cannot agree more with the writer that stock investing is not a binary decision, that is, to be totally in the market or to be totally out of the market, and not somewhere in between. But essentially, in stock investing, it should be somewhere in between. Periodically, we should put some percentage into stocks while another portion to remain as cash depending on our comfort level. It is this periodic allocation that probably wins the race even if one is just a medium performer in stock picks. The cash portion, by itself, is a good cushion against any crashes or significant meltdown that can occur from time to time.
People who are serious about in stock investing would agree with me that it is like managing a business. And like in a business, we simply do not get into it because the time is good and out of it when time is bad. Most of the time, we have to steer the business as it moves through the good and bad times. In the past twenty years, we witnessed at least two major stock crises that saw the STI tanked 60%. Apart from these major crises were numerous smaller ones that had depressed the STI of somewhat between 15% and 30%. If we look back in history, the time period between all these crises was not that long, at most 3-4 years in between. Each time when it occurred, we do not know the real bottom until it had passed us convincingly. Only then, we start to regret in hindsight.
A very good example was the marine and offshore industry. Just 18 months ago, we saw everywhere is bad news and the two major oil rig producer SembCorp Marine and Keppel Corp were hitting their lows. But by today, the share price of the two stocks has already past their lows. For those companies whose stocks have been either suspended or still struggling to get out of the problem that plaque the industry, it is because they had over-stretched themselves during the good times.
To date, the Dow hit its all-time high in 30 of the 54 months since the global financial crisis. Within a year since Donald Trump was inaugurated as the president of US on 8 November 2016, the Dow advanced more than 5,000 points to 23,400.86 as of market close on 26 October 2017. Whether we are trading via HKSE, Nikkei 225, any European markets or the STI, we are either at the respective all-time high or near to it. Perhaps, I may have selected a wrong time to write about this because all these markets are at their all time high, and may be in for a huge fall in the near term. However my personal experience in my investing journey showed that cashing out can sometimes be worse than simply stay on course. My ill-timed sell-out and inability to carry out a re-purchase program during the Asian financial crisis was a costly mistake that I wish to forget. In the other 4-5 crises into the new millennium, it seemed that I had done better. True, when a crisis was in the midst of gyration there was a lot of fear, but it seemed that things got better than it originally started when things were over. So, actually anytime is a good time to start our stock investing journey.
Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.