This is one of the accounts which I'm looking after. I purchased a modest amount of the STI ETF near the market bottom and the current price is somewhere off the initial purchase price already so. I'm not doing this to show that it is possible to pick the bottom as I think it is almost impossible for anyone to time the market precisely. But I do think that buying in when the stock market is undervalued is something which can be done. And this is also the time where the majority of the market players are too fearful to buy but it is also possible for investors to overcome their natural instinct of fear during a market plunge and buy in. Unfortunately, my initial purchase price for my own account is not that low although I'm still sitting on a decent amount of paper profits.
I'm sure there are quite a number of investors out there who are sitting on a sizable amount of gains which are much greater than mine after taking the contrarian approach for past few months. The market rewards the brave indeed.
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Hi Kay, I admire your courage and vision. Even though I started buying stocks 2 weeks before the rally in march, I was on the most part staying outside the market observing what was going on. Nevertheless, I do not regret what I did but feel that it is prudent to be slightly cautious.
ReplyDeleteIndeed, I guess what you said about buying undervalued stocks made alot of sense, and this is exactly the approach I have been taking all this while.
Hi KF,
ReplyDeleteI'm glad that you are taking the approach of buying the undervalued stocks and I'm sure you will do well with time.
Kay
Hi Kay,
ReplyDeleteStill a newbie with this but has gained so much from reading your site. At this current point, do you still think its a good time to get the STI ETF?
I am looking at it for a long term holding. would you have any other recommendations? thanks.
Hi Gabriel,
ReplyDeleteI still believe it is a good time to get the STI ETF now even though the STI is somewhere off the bottom already. The reason is because the STI is still quite far away from the previous peak. Since you mentioned that you are looking at it as a long term holding, it should not be a problem. One thing to note is that you should be mentally prepared to hold on to it even if the price drop below your initial purchase price.
Kay
Hi Kay,
ReplyDeleteThanks for your prompt reply. I would consider going in to get it. And yes i am looking at it as a long term holding. Maybe 10 years? I am 21 so time i guess its a reasonable period of time. And as from what i have read from Mr. Tan Kin Lian, yours and other websites, they will perform its best over a long period of time. Thanks!
Gabriel
Hi Gabriel,
ReplyDelete10 years is definitely a long time frame to ride out any volatility in the stock market. Besides, time is on your side as you are still young and you have at least a few more decades ahead of you.
Kay
I'm quite skeptical about the performance of the stock market in the mid-term. If you look at historical P/E ratios of stock indices in U.S., stock market over there tends to have a single digit PE ratio during financial crisis, while recent PE ratio is still hovering at double digit. I believe global stock market still have some downside to go in the near future.
ReplyDeleteIf you have read the book 'Joseph Cycle', it also suggest that we should not view recent development will rose-tinted view. I do not know when it will come, but I definitely foresee a major correction coming in the near future.
What is your view on this?
Hi KF,
ReplyDeleteYou have raised a very good point. The lowest P/E for the S&P 500 index during this current recession is around 10.8. In the past, financial crisis usually have single digits P/E ratios thus it seems to be not conforming to past events.
So the question that remains is that are we moving to a new financial era where the lowest P/E ratio for bear markets is a low double digits as compared to single digit in the past ? Unfortunately, no one knows as the past may not necessarily predict the future and no one knows the future with any certainty.
IMHO, I don't think the market will breach the bottom formed a few months ago although there is a slight chance that we may revisit the bottom. The reason being that the economy is already recovering at this moment and the worst moment of fear and panic has already happened. True enough, the economy may not be booming in the mid-term, but as long as there are no other catastrophic events such as war, the market is not likely to edge downwards.
I heard good things about that book but I have not read it yet. Maybe, I should pick that book up.
Kay
Hi Kay,
ReplyDeleteyour point about the P/E ratio in the new financial era set me thinking. It is indeed food for thought for me, since history may not be an accurate indication of the present and the future. Well, who knows what will happen!
I definetely agre with you that unless catastrophe events happens, market momentum is likely to remain the way it is. However, I'm not all that optimistic on the global economy, given the deep-rooted issues we have yet to resolve.
And yes, I believe you should get a copy of the book. The dynamics of stock market movement is presented in an interesting and thought-provoking way.
Hi KF,
ReplyDeleteNo one knows what will happen in the future indeed thus your opinion is as good as mine.
I must say that I'm more optimistic than you. Inherently, humans will always try to solve any problems that happens. No doubt, sometimes it may take a much longer time than what it is expected to solve it, but it will still be resolved in the end. Thus, even if events that are of similar or of greater impact than the Great Depression arrives, it may last a really long time but I believe it will still be resolved in the end.
Kay
Wow! I read this blog in interest. I'm new to investing, and I have always wanted to know the answer to my question. What do investors actually do in a bear market? If I foresee a bear market coming, do I sell all my stocks and keep my assets in cash? It seems that short selling is not a viable option, since I have to settle my transaction within 3 to 4 days. What are the stocks that move against market direction? (the only one i know of is S&P 500 short)
ReplyDeleteHi Don,
ReplyDeleteIf you can foresee that a bear market is coming, you can sell your stocks just before the onset of a bear market and keep them in cash or cash equivalents. When the bear market is in free fall, you can gradually take out some of the cash to purchase back stocks that should be at a depressed price now.
However, it's not easy to foresee that a bear market is coming as it is hard to predict any short term market movement. Besides, buying in a bear market requires one to take action which is contrary to what the majority of investors are doing and to have some courage in doing so.
There are other alternatives beside short selling. You may wish to take a look at a post of mine and the subsequent comments @ http://www.moneytalk.sg/2009/05/naked-short-selling.html
Some counters and instruments that move against the market direction include inverse ETFs and warrants. The DBXT S&P Short 10US$ which you have mentioned is an example of an inverse ETF. However, such counters and instruments carry high risk and I hope you will try to understand them throughly before you make use of them.