Two weeks ago, Singapore was knocked out of the Suzuki Cup, lost two games and drew one. As usual, there were always criticisms especially when we lost, but one of the comments seemed to be extremely common among the critics that we had been playing too defensively. In the first two games, we played defensively because we played with 10 men in the first game and then a much stronger team in the second game. By the time we are in the third game, we no longer found comfort in defending, and when we started to get into the attacking mode, we find our defence too weak to hold the opponents. It exposed our weakness. We ended up in a loss of 2-1 in the game. What lessons can we draw from these football matches. If we have been playing too defensively in these games, the best result is a nil-nil draw. If we are not careful, we can even lost the game, just like what we experienced in the second game when we lost 1-0 to Thailand when the goal came only at the 89th minute. Just like in football matches, playing too defensively in our personal finance may not help us. If we keep saving all the time without any form of investment, we will find ourselves working extremely hard, especially in times of in inflation just like running against the track-mill. (This is also illustrated by my below-mentioned book.)
There is also another group of people, who just want to bank on that the market tank to 1800 before starting to invest. Of course, it is possible even if the probability is only 1%. The stock market may hit that in the coming years. However, if we were to look at the our stock market history, we only encounter two occasions that the market tanked more than 50%, during the Asian financial crisis and the global financial crisis. The period between the two of them was about 10 years. Most of the time, a drop of 20%-30% is considered very, very significant. At a current level of 2,900, it would take another significant drop of 38% to hit 1800. Think about this. At the level of 2,800/2,900, I would consider our economy doing badly. If it really gets to a level of 1800, then our economy must be really, really bad. Under that kind of circumstance, I am not sure we have that fortitude to invest. It could mean that any counters, even blue chips, could be in danger of going bust. Furthermore, if one were to think of buying in a big way when the ST Index reaches 1800, I am very sure there are many people out there also think likewise. Consequently, there are bound to be people trying to outsmart the market by taking a position before it reaches 1800, say at 1900 or 2000. So, the point here is that it gets more and more difficult when we try to time the market when it is very far from what we are now. Frankly, in our whole lifetime, we don’t really get many times that the stock market tanks 60%. If it comes, let it come. We do not need to time the market in hope to get a big upside while missing out many smaller opportunities that can happen from time to time. In fact, when the stock market really drop by 60%, we may even be the unlucky few to put our money into those companies which are about to fail.
At the end of the day, just invest wisely and consistently. Every small step that we take is one step nearer to our long-term objective.
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.