Remember that money is made when we buy during pessimism

In the last few months, the stocks markets in many regions were reeling down from their highs around April. Several months have passed and many investors seemed to have distanced themselves from the stock market. Some even vowed not to come back again. Just a few days ago, the STI hit below 2800. it had fallen more than 20% from its recent high, putting it in a bear regime. But, then the question is why so downbeat when these may be  opportunities that we can buy back stocks that we had sold off during the highs. If the stock prices did not drop and remains high, it would be impossible to pick up the stocks again. Yes psychologically, we tend to be more pessimistic when the market goes down and less optimistic when the market goes up. But isn’t it that we have often been told and be reminded that stocks can go up and down. It’s only that we accept that there is volatility and willing to embrace this volatility that we will become more emotionally detached when dealing with stocks. Frankly, it’s not easy in the beginning of my investing journey, but over the many years of investing, after going through many cycles of ups and downs, I start to detach emotionally from the stock market volatility as I know I have no control over it. I just continue to focus on my long-term goals irrespective of the market conditions. Instead of crying over the losses, we should focus our attention on things that we can control, such as doing our day jobs, completing our projects and working on something productive and enlightening. That’s essentially why I am never in trading and, very embarrassingly, I have never had the first-hand news of the stock market. And, very certainly, I admit that I can never be a good trader.

To me, stock investing should not be a standalone activity. It should be  part of personal finance that also embraces money management. We should ensure that we have sufficient liquidity such that we are not be put into a forced-sale situation or be missing buying opportunities simply because we do not have sufficient funds. Just 2 day ago, it was reported on The Straits Times that $40b have been pulled out fom the emerging market. Certainly Singapore is one of the discarded victims as well. As mentioned in my earlier post, due to the relatively small size of our stock market (and in fact regionally), just taking away a few billions dollars off the stock market could bring down our stock index drastically. Yes, there is going to be a technical recesson ahead. Yes, the China economy is not performing well. Yes, the currencies of our neighbours are hitting historical lows, Yes, the writing is on the wall that US is going to hike the interest rate. But then, aren’t these yesterday’s news that have already been priced in the stock index. So while some funds might have left us, opportunities may present themselves such that by the time when funds do come back again, we can ride on the rising tide. Of course, I have to qualify that I do not mean that we should buy aggressively starting today. What I mean is that after all these brawls, isn’t it time to open up our eyes to look at the stock market again? Frankly, I am not expecting that the stock market is going to turn sharply in the next 3 months or so, or perhaps not even two years down the road, given so many issues that we have no control of. Neither do I dare say that this is the lowest point and that the stock market cannot go further down. What I am saying is that to make significant money, we have to buy during times when there is extensive pessimism when everybody is looking away from the stock market, and sell during euphoria when even those who have never been in the stock market are in it by herds and droves, not the other round. Perhaps, look back into your stock portfolio now and try to recall when you had bought and sold those stocks that you had made big money (at least percentage wise). Very likely, those that you had made big money were bought during bad times and sold during euphoria, unless you are a big-time speculator trading $100k each time without a blink of your eyes.

Also read:

  1. Market psychology – Are we at the market bottom? – 19 Aug 2015
  2. STI – Is it better to be on selling mode now? – 9 June 2015

(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.