On 5 February 2018, US Dow Jones plunged nearly 1,200 points, the biggest single-day decline on record. The sell-off in the US market came after a smaller decline of 666 points on the previous Friday. As expected, Asia stock markets suffered similar carnage. Straits Times Index was down 121 points on mid-day 6 February 2018.
Is this the start of a bear cycle or just a healthy correction? Many analysts had been forecasting the trend of the stock market for the longest time. A number of them predicted that a stock market crash is imminent. But the matter of fact is that nobody can predict the future. If someone tell you that he believes that the stock market will rise or fall, don’t believe him.
What is your strategy?
Whether it is a healthy pull-back or a devastating stock market crash, it is important to have an investing strategy. Far too many people lose their wealth to Mr Market not because of the failing of the stock market, but because of their flawed investment strategies, or the lack of it. If you followed my blog closely, you would have realized my strategy is to buy assets at discounted value or during distress times.
You stand a higher chance of winning the stock market when you made money at the point of buying, and not at the point of selling. What does this mean? It is important that you grasp this concept, otherwise you would be constantly distracted by “market noises”.
During a bull run, many stocks would be traded at inflated prices. Just picture this, US Dow Jones had a magnificent run since the Great Financial Recession in 2008, reaching a record high of 26,000 in January 2018. Back in Singapore, the stock market also took the cue from the US, reaching a high of 3,400 in January 2018. Although STI had not reached the record of 3,800 in 2007, this is immaterial as global markets often follow the developments in US market.
It is not possible to time the market and you stand a higher chance of losing money in trying to do so. But you can certainly mitigate the risk by buying stocks during sell-offs. To do so, you must discard your habit of following the herd and go against the flow. Indeed, going against the flow requires much courage and it is not easy.
But you can further reduce the risk by doing your due diligence on the company you are investing in. Don’t make the mistake that just because it is a blue chip, you can sleep well and let the market run its due course. In Singapore, Noble Group is a classic case of falling knife. Ultimately, cheap does not translate to value. You must be clear on this!
Buy low, Sell high
Every investor knows that to make money from stocks, you must buy low and sell high. This is like selling a product. You buy the raw materials at low cost and sell the product at high price to justify the margin. As a stock investor, the same principle applies.[This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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