2008 has been a rather fruitful year for me. As this point of time, STI has declined by around 49% since the beginning of 2008 while my holdings of equities is currently slightly up by 4%. This is because I stayed out of the market for most of the time and I only entered near the interim bottom formed in October and since then, STI has rebounded slightly although it is in a consolidation phase now.
I'm not sure what 2009 will bring. Whether the bottom made in October will turn out to be the final bottom for the STI or it will continue to plunge, I'm not that sure either. What I'm sure is that if it plunge even more, I will be ready to scoop up more equities at a cheaper price.
As I recalled on how I made my purchases in equities, I guess some part of it can be attributed to luck although proper planning is still important. When the market peaked in October in 2007, my plan was to split my capital into 3 portions. I will then use each portion of the capital to buy in when STI has declined 30%, 50% and 60% from its peak respectively. This will help to average down my buying price and reduce the risk of putting all my capital into equities, only to see the market plunging even further.
As it turns out, when STI declined 30% from the peak, I was rather hesitant about buying in because I reasoned that a decline of 30% from the peak is rather low for a financial crisis that has been compared with the Great Depression. After all, the STI actually declined by slightly more than 60% in the Asian Financial Crisis thus I gave it a miss in buying when STI declined 30% from the peak.
Not long after, STI declined 50% from its peak and this time round, I was fearful of buying. Irrationally, I thought that since STI has declined by such a huge percentage, it can continue to plunge even further. On hindsight, this way of thinking is rather illogical. I should be thinking that since STI has declined 50% from its peak, it is the time to buy since equities are at huge discount now. However, I gave it a miss again once again and I still think it is foolish of me to do so since I could be running the risk of the market rebounding off the bottom without me.
Finally, STI declined by 60% from its peak. This time round, I was too tempted by the huge undervaluation of equities and I plonked part of my capital in promptly. It turns out that STI has found an interim bottom at a level which is slightly more than 60% from its peak.
Thus I was pretty fortunate that my holdings are still slightly positive at this point of time. If the market continues to plunge further, I will continue to scoop up more equities. I guess it is important to plan and know what to do when the market reaches there and continue to stick to your plans. In this way, one will feel less fearful and will be able to carry out his plan successfully. Let's hope that 2009 will turn out to be a better year for all of us.
Wednesday, December 31
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you are a strong investor getting out just at the top.
ReplyDeleteunfortunately for me i'm down nearly 20k because of that.
protecting capital is important. holding on to investment is not.
Hi drizzt,
ReplyDeleteI'm sure you will do fine if the equities you bought are fundamentally strong companies. The market will price them correctly in the next bull run (:
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