Conventionally, we tend to think what stocks to buy and then sell them, hopefully, at a high for some profit. But in a situation when money is cheap when the bank interest is so low, it is always important to have a stock portfolio on hand. In fact, I always advocate having a stock portfolio irrespective of whether the environment is good or bad for stocks. It should be, and it should be only a question of in what proportion eg, cash-to-stocks proportion, cash-bond-stock proportion. Simply put, we should not be holding 100% cash or 100% stocks at any one time.
But the question is when you have a stock portfolio, especially when it is a sufficiently large, one of the situations that we tend to be afraid of is when there is a stock avalanche or there is a serious hit in one sector. Just about a year ago, O&G come under pressure and until today, it has not fully recovered yet. Perhaps, the stock prices had hit their lows and had sprung back to some extent. It is not sure, going forward, if it is going to test new lows or to go up. Similarly, just 6 months ago, the commodities were also hit. Companies dealing with palm oil and metals also came under pressure. share prices in this sector have recovered a little bit as well, though not fully.
Sure, as a long term value investor, I never trade for a living. I always take advantage of dividends and long-term stock appreciation to build my portfolio. I keep stocks for many years and, as far as possible, try not sell unless really necessary. After all, stocks should be considered as part of our wealth. Why do we need to change from one asset class to another so often. In fact, many stocks were no short of being multi-baggers as what Peter Lynch might have called. After all, as we know, good stocks always appreciate with time though not necessary in a straight line. But sometimes, when the tide is against us as a long-term investor, it may be important to sell first and then to buy it back later. After all, if we sell first and buy back the same quantity, our portfolio, remains the same and we indeed earned back the price difference. So actually, we still can make money when the market is down. So, in effect, we can make money both in the up or down situation. The only difference is that in down situations we tend to get more gloom than when the market is in the up situation. However, we really have to be practical that we need some volatility to sell some stocks and buy back some stocks in order to gain from the price difference. As mentioned, I do not trade for a living, but sometimes when the situation is permits so, we have to do so. You may think that it is trading just by looking at a snap-shot of the timeframe, but my long-term objective is still intact. Some market psychology and trading experience helps.
Brennen has been investing in the stock market for 26 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.