The importance of financial goals

Until a few days ago, stock investment has been extremely daunting. For several months, the stock market has been relatively unidirectional – downwards! Even with the run-up in the last few days, the stock market still lost more than 10% since the beginning of the year, and more than 13% from the high made around April/May 2018. So, if we have been a net buyer of stocks in the last 6 months, it would be a big miracle if these stocks are unscathed by the end of last week.

But then, the question is should we stop the whole buying program and leave the stock market until the bull returns. If we did so, we would have probably missed sharp u-turn of about 5% this week.  Actually, in this complexity of the daily ups and downs belies only two uncertainties – we do not know how exactly how low is the low and how high is the high. If we have known that 2 critical points, then things would be very clear, and our decision-making process is just as easy as snapping our fingers. We are, after all human beings, and we do not know what lies ahead.

Given this backdrop of the uncertain future, we need go back to the basics of why we are buying stocks for? It is not known of the financial objectives of the readers out there, but for me it is extremely simple – I want to build a formidable portfolio in this life journey (Sorry, I am not able to provide specifics). So, whether the market is going up or down, I will have to ride through somehow. I am certainly not clever enough to sell everything when the market is at the highest point and buy everything back when the market is at its lowest. Even if I can do it for one or two cycles, I am definitely not able to so repeatedly for many cycles in my whole life journey. But that said, there is still a need for some buying or selling criteria so that we are not caught buying at the highest point and selling at the lowest point.

If we look at the whole investing journey, we are in effect, a net buyer. Everyone of us starts off from zero, and our objective is to have some stocks at certain point in our life-time no matter how dicey our objectives can be. With such a down period like in the last 6 months, are we going to give up our journey towards our objective? Think of this investing journey like a car ride. From the starting point to the destination, the journey is infested with many disruptions such as traffic lights, pedestrian crossings, floods, road accidents and even animals dashing across roads. With these disruptions, do we give up the car journey? Certainly not, right? In fact, during such trying time, when everyone is not ready to buy stocks, it may be a good time for us to accumulate stocks at discounts. Just 6 months ago, many were complaining that stock prices had become extremely high. Over the past 6 months, the market and stock price have become a lot cheaper. There were  a number of stocks offering discounts for those who had missed the cheap sales years ago. In fact, very often, we regretted in hind-sight that we did not buy ‘such-and such’ stock when it was at ‘such-and-such’ price some time ago, right?

With proper financial objectives, then the picture ahead would become much clearer even if that destination is still far, far away. No matter how difficult the market is going to be, we still continue to invest and head towards the final objective. Every step that we make is one step nearer to the objective. Just like in a car journey, we need to have clear objectives to define our route of advance in our investing journey. (I cannot imagine what it would be if we do not know even the final destination in our car journey.) From so many observations in my decades of investing, the best way is to detach ourselves from the ever-changing economic environment. In fact, the stock market tends to move ahead of the real economy. So, if we try to use the economic outlook as a guide to make our buy or sell decisions and to wait for uncertainties to become certain, we often end up missing the best purchase of those stocks. If we are convicted to reach our financial goals, and stocks values have emerged themselves, then we should go ahead to buy them. Procrastination and trying to time the purchase at the best price often lead to missing the boat because the u-turns, as seen in the last few days, can be extremely sharp.  After all, stock prices tend to move upwards in the long run. Even we did not buy at the best price, we are often rewarded if we keep the stocks for sufficiently long time. That said, make sure we are holding fundamentally good stocks.

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Disclaimer – The above arguments are the personal opinions of the writer. They do not serve as recommendations to buy or sell the mentioned securities or the indices or ETFs or unit trusts related to it.

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Brennen has been investing in the stock market for 30 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. 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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