Analysis
Rationally irrational
bursagoinglong
Publish date: Fri, 09 Feb 2018, 04:11 PM
Dear Readers
It would seem like the rocket booster that propelled the equity markets, since mid-December 2017, has used up all of its solid fuel and has begun its violent descent. The Dow plunged 7% in two trading days. Bursa is in no better shape too.
I hope it did not come as a shocker to you.
While many are trying to comprehend what triggered the market sell-off, some are going a step further by predicting whether the sell-off could be a correction or a beginning of something sinister: a bear market. But have we not learnt that the idea of predicting the future is a fallacy.
Though we can’t predict the future, how we act now will certainly influence our future.
I can’t speak for all but if you have set aside money to be invested (not speculating) in the stock market, then you just have to sit tight and do absolutely nothing. Yes, I am suggesting that you act, what you may perceive to be irrational, but is in fact rational.
If that money is meant to be invested, that means you will have no use for it now, except to see it grow, over time. So if there is no use for that money, until sometime in the future, does it really matter what Mr Market values your stocks now? Ponder at this.
https://bursagoinglong.wordpress.com/2018/02/07/rationally-irrational/
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Discussions
Be the first to like this. Showing 5 of 5 comments
v. good point. It's also a time for us to reflect on how best we could have manage the funds set aside for investment, in particular the role of cash reserve in our investment fund.
If we are fully invested, then we would not have spare cash, to take advantage of the cheap sale on offer now.
Wonder what is the experts view on this, as 2018 looks to b a v. volatile year for investors.
2018-02-09 16:36
Hi More2It, the experts' guess is as good as yours i.e. they don't know. Don't rely too much on expert. I used to but now I just take their advice with a pinch of salt.
As for your predicament with spare cash, you should shape your portfolio to take advantage of market drops by diversifying into other liquid assets which have no/little correlation with the movement of stock markets i.e bonds. That way, you can liquidate bonds to invest in equity when equity is beaten down.
When the market is on the rise -sell off equities to rebalance your portfolio. This is an approach adopted by Tony Robbins and Ray Dalio. It however, requires a more hands-on approach to investing.
Another method is by using margin on low volatility stocks i.e blue chip, especially when a blue chip stock is beaten down by market drops. Riskier but it does have its merits.
Good luck!
2018-02-10 01:16
@bursagoinglong
thks !
What do u think of the idea to keep a fixed portion of investment funds in cash/cash equivalents this year,( eg. 30-50%) as BURSA is expected to b volatile this year ? so, as to b able to take advanatage of unexpected bargains like now.
or u dont mind b 100% invested,as long it is good stocks ?
thks in advance
2018-02-10 22:32
Last year, I remembered that experts also believed that the market would be volatile etc. Despite all of the negative news, the market proved them wrong. Last year was the best year for equities (Malaysian perspective) in the last 2-3 years.
I won't keep too much of cash. Stay invested at all time - like 90-95% of your wealth but do not apportion all of them in equities. I keep only 5-10% in cash, most of the time. Diversify you wealth into other asset classes. You won't make incredible gains but you won't lose much if things go south.
Staying invested is recommended because the market only makes a/some bullish stride(s) for a number of days per year. The rest of the time, the market will be mostly sideways. For example, if you hadn't invested in January 2018, you would be at the sidelines when the market was bullish. Because no one can tell when the market is bullish, it is better to stay invested all the time. (Read Tony Robbins - Unshakable)
Cash can always be raised from the savings of your monthly income (salary or from business).
2018-02-12 11:33
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Oldmantea
well written
2018-02-09 16:28