Tackling the current uncertainties

To date, we have already completed 14 trading days in the month of February. The ST index closed 2629.11 on the last trading day of January and of today, it ended at 2660.65. In other words, ST index advanced only 30 points over that past 14 trading sessions, with almost equal number of days of rises and falls. Certainly, to predict whether the ST index is going to go up or down at this time as good as betting a head or tail in a coin-toasting game. All the bad news about commodities prices falling, tanking of crude oil prices, hiking of US interest rate and China slowdown that can lead Singapore into a long-drawn recession have been priced in the recent stock market shake-out. At this moment, the bulls and the bears are in equal force causing the situation to be in an almost stalemate position. So, whether you are a punter, trader or a long-term investor, perhaps, there is nothing exciting to brag about, except perhaps to look forward to some dividend payout dangled out by companies for being shareholders as most of the companies close the financial books in December.

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Has the market bottomed?

Frankly, I did not look into Hang Sheng or Footsie or the Dow Jones, but I think they are more or less the same story as the world financial markets become more efficient. But then, does it mean that the market has bottomed? Maybe yes, maybe no. What the market did was that it priced-in the news until now, but what about tomorrow, next week, next month or even next year? Frankly, nobody can tell with pin-point accuracy. I remember that about 20 years ago when the STI fell from its high of about 2425.70 in 31 December 1993 to 2239.60 in 31 December 1994, it actually stayed around that level for the next two years. By end 1996, the STI was 2216.80. If you think that the market had bottomed, you may be in for a rude shock. In the year that followed, it tanked 30%. By 31 December 1997 it was 1529.80. Then it tanked again by another 100% following the Asian Financial Crisis to 805.04 on 4 September 1998.

Of course, I don’t mean that the current situation will follow exactly the same pattern as it had happened 20 years ago. What I am illustrating is that stock market meltdown sometimes come in so shockingly that we simply do not know how to react.

Can we really able to buy at the bottom?

In a similar way, we are also somewhat influenced by the pessimistic sentiment around us as market falls. It is generally fair to say that our decisions can be highly influenced by the market sentiments. When the market hits its low, we tend to procrastinate in hope for the market to tank further even though we know that stocks have become cheap. During one of the courses that I conducted somewhere in April 2013, one student pointed out to me that he wanted to wait for the market to hit low before he goes in with “big amount of money”. He also told me that he had not been investing all this while. My point to him was, he might probably not able to see where really the bottom is. Especially, when the market advanced two-days for every two days of drop, it is hardly possible to see where the bottom is. By the time, one knew where bottom was, it might have already passed the market trough. So, at end of the day, it is important to invest regularly in small quantities to smoothen out the financial shocks that time and again surfaced. It applies to shares, unit trusts and ETFS, a technique that fund managers called as dollar cost averaging. Sure, as we increase the frequency of purchase, the brokerage charges can unconsciously increase, but do remember that it can more than offset by the lower price that we pay for the shares as the share prices fall. So, it always makes sense if we make small purchases in times of extreme uncertainty. After all, we do not know how long this market brawl is going to last even though we seemed to be in a period of lull right now.

 

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.

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