Data of historical bear markets for the Straits Times Index (taken from fundsupermart)
The above diagram which is taken from fundsupermart shows the duration it takes for the market to bottom from its previous peak. It ranges from 87 days to 627 days and the average is 360 days. If we take the low of 1473 made on the 28th of October last year as the bottom and the peak level of 3875 made of the 11th of October in 2007, the current bear market has lasted for 383 days and that is close to the average duration for bear markets.
For the percentage drop, if we use the low made on the 28th of October last year and the peak level of 3875 made of the 11th of October in 2007 similarly, the Straits Times Index has dropped by a percentage of around 62% and that is comparable to the percentage drop during the Asian Financial Crisis, which stands as the biggest plunge ever from the peak, for the Straits Times Index.
Based on these factors, one may be taking on a high risk of missing out on the market bottom. It is difficult to know exactly when will the market bottom. But the most important thing is that one should not try to catch the market bottom since it can notoriously difficult to do so, but one should at least be sure that he is buying near the market bottom. In my opinion, we are near the market bottom indeed based on the above factors. A note of caution though if you are planning to buy. You should be emotionally prepared to suffer a temporary decline in the value of equities that you have bought but I suspect it will not last long given that as of today, it has been 480 days from the previous peak and the longest historical duration is 627 days so far.
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very helpful— good analysis
ReplyDeleteHi squidtoast,
ReplyDeleteThanks for your compliment.
Kay
Given that market may be nearing bottom, how closely would you follow a Dollar Cost Averaging (DCA) strategy? Would you depart from a strict DCA discipline of investing a consistent sum of money, and start investing more?
ReplyDeleteHi Kay,
ReplyDeleteThanks for the well-written analysis.
I need to seek your opinion on short-selling? Recently I attended a seminar on short selling and understand that there is a trading system in place to perform this strategy. What is your take on this?
Thanks.
Hi learneRd,
ReplyDeleteGiven that the market may be nearing bottom, I would still stick to a DCA plan but increase the amount of funds that is to be allocated for purchase every fixed period. The advantage of a DCA plan is that it takes the guesswork out of determining when to buy.
Kay
Hi Barack,
ReplyDeleteGenerally, I do not recommend short-selling as it is risky. This is because the maximum potential profits is only 100% while your maximum potential losses can be infinite. For example, you can short a share at $1.00. The maximum potential profit is when the share becomes worthless. What happens if the share price become $2.00 or even $5.00 ? You will be looking at a loss of a few hundred percent. There is no cap to how high the share price can increase.
Kay
Hi Kay,
ReplyDeleteThanks for the sound advice. I'm really keen to learn about investing however I find that Singapore does not really have an institution where we can learn from basic. Besides reading more books and gather more information via the internet, there's no other alternatives left to further my interest. I would greatly appreciate if you provide some advice in this aspect.
Thank you.
This comment has been removed by the author.
ReplyDeleteHi Barack,
ReplyDeleteIf you are going for tertiary education such as taking up a degree, you can choose to major in Business or Finance. Such majors should equip you with the skills that are needed for investing. Alternatively, you can take elective modules such as accounting or finance. This will save you some time in acquiring knowledge rather than acquiring such knowledge by yourself.
In addition, you can visit forums such as the Wallstraits forum, Channelnewsasia forum under Market Talk, Shareinvestor forum or the huatopedia forum. You should be able to find the links to these websites using Google. In some of these forums, there are investors who are willing to share on their methodology of investing and opinions of companies. Beside that, there are also blogs in the local blogosphere such as sgmusicwhiz.blogspot.com. I hope this helps.
Kay
Hi Kay,
ReplyDeleteThank you so much for the valuable advice provided. I will certainly consider the available options. Once again, thanks. :)
Hi Barack,
ReplyDeleteI'm glad to be of some help to you.
Hi Kay,
ReplyDeleteThanks for sharing the above information. I am new in stock trading, there are really a lot for me to learn. While picking up more knowledge from sources like what you have suggested to Barrack, I am thinking to sign up for one of the trading system out there in the market, it seems like a realiable system. What is your personal opinion on trading system? Really appreciate your advice as I am quite loss. Thank!
Hi Hazel,
ReplyDeleteTo be honest, I skeptical on these trading systems. If such systems are indeed so profitable, I don't think the creator of these systems will sell their systems. They would be making more money by using the systems themselves. Furthermore, these trading systems are not cheap to my understanding. If these trading systems are quite affordable, I guess it would not hurt to give it a try. Otherwise, the money spent on these systems can be put to better use by buying investment books.
Hi Kay,
ReplyDeleteThanks!:)
I will think about this seriously.
Hi Hazel,
ReplyDeleteNo problem. Do think about it seriously before you part away with your money for such trading systems.
Kay