Learn from expert what to do in today's market

Investors dreaded the month of October, as most of the major corrections happened in the month of October, thus it got investors and traders nervous in this month every year. After my last post about VIX fear index, it surged to a high of 25 before receding back to a closing of 22. Before my post about VIX index, I did not see any post about using the fear index as a guide. At 22, it is still above the norm of 18-20, so many experts have advised to expect more volatility to come in the market. Apart from the VIX index, there is also another chart one can make reference to, which I found it interesting.

Property prices will keep going up?

This is my first post about property, but it is not really about property as I am using this in relation to stocks. I am sure many of us heard about this statement many times, either from eager property sales person or in the showroom that you have visited. Many times, we were told that cant go wrong buying property in Singapore, it will keep going up in long term. Yes, the catch is in long term. Being someone who likes to play with data, I search the HDB portal for past resale transactions and guess what I found.

Is now the right time to invest?

In the recent months, with US indexes hitting new highs and strong rebound after each correction, many people have been asking this question, whether is now the time to invest. All of us knows that and have heard many times from financial experts/advisor who will tell you that, any time is a good time to invest, for long term. Yes, they always tell you long term, but you will be back to square one and I will explain later using a chart below.

Looking at the S&P500 chart below, if history is of any (good) guide, assuming at the advice of the financial experts you bought the index in 2000 because he/she advised you to ride the strong uptrend market, dont try to time the market and hold for long term. Unfortunately, this is immediately followed by a correction of about 40%, and only 7 years later, in 2007, then you probably break even. This is also assuming that you had not bought after the market has corrected after 2000 (some call it dollar cost averaging), and this will be true to majority of retail investors(you and me), who will stay out of the market especially when what you had bought has corrected 40%.

Fast forward to today (2014), looking at the chart below, it seems that we are back in the similar situation like in 2000 and 2007. So is it the right time to invest now?

Last trading day of 2013

I was on vacation when I saw the news of layoffs by HGST and it struck deep in me as I have also heard about friends and clients whom were layoff in the financial sector since last year. This is definitely not the most desired way to end 2013 and start 2014. I hope they have a healthy balance sheet(family) to see them through during these period and that they can find employment in 2014. This further reinforced that one should prepare himself/herself financially so that in the event such a unfortunate thing happen, it is not the end of the world.

As we moved into the last trading day of 2013, I would like to share some of the lessons learnt over the last 12 months. 

Risk and Rewards. Dr Tony Tan once said, and I quote 'when you take care of the downside, the upside will take care of itself'. How wise is the statement, and many times, it has worked for me for those shares that I have bought below their NAV and low PE. Taking care of the risk also means that one needs to cut loss if it does not turn out to be in the direction that you have set out to be. Cutting loss is important as you keep your loss to the minimum so that the profits from the other counters can help to reduce the impact to your overall portfolio.

Know Thyself. Not everyone can be both a trader and an investor. My definition of a trader is one who buys and sells share based on TA, solely TA, and that he/she does not keep shares for long period of time(more than 2 to 4 weeks). An investor is one who uses FA to select the stocks that he/she wants to buy and then uses TA to time the entry and exit from the market. I know where i belong to after having my loss when I tried trading.

Diversify. Although some people said that you dont know what you are investing if you have a diversification of portfolio. I have said this many times, I am not expert so I cant be putting all my eggs into one basket(and besides most of the experts were also wrong during the Lehman crashed) and therefore I need to learn from someone who has proven track record. Walter Schloss holds a portfolio of stocks using his own selection which he has shared and for 45 years, his fund has produced a healthy return of 15.3%. This is very impressive considering that it has beaten S&P500 which has recorded 10% for the same period of time. And besides, the penny crashed that we had in October, can you imagine if you have put all your savings into one of these counter, Blumont Group Ltd, Asiasons Capital Ltd and LionGold Corp Ltd.

Be Patient. I too made this mistake of buying too early, just like most of the investors. I have to constantly remind myself that sometime it is worthwhile just to wait for a few more days before deciding again whether to enter the market. To mitigate this, for the past few counters, I have been entering that market in batches using TA.

In less than 15hrs, we will be starting 2014, what is your investment strategy moving into the new year ...

What can you do in today's market

Let's face it, global market is no longer as cheap as it used to be. Dow Jones and S&P500 has continued to maintain at new high, Asia markets also soared the last week after reacting positively to Yellen led Fed Reserve. Traders like this period of market volatility because this is where they make money from short term trading. However, many of us will not have the time to watch our counters every minute or second. So what do you do now as investors?

Be sensitive to global fundamental. Just a few days ago, CISCO, the US Giant networking company forecast a steep drop in revenue and weaken orders from emerging markets. There are couple of networking equipment stocks listed in SGX, is this a good time now to invest in those, given the warnings from CISCO who is the leader of the pack.

Looking at numbers. Most of the people wants to be or learn from Warren Buffett, but the fact is that there is only 1 Warren and no one can think like him. Are you able to read and assess in-depth of the management team like him, would you buy the shares like his recent purchase of IBM and Davita, which based on TA is high. We are simple man with a day job so instead of trying to analyse with so many things, maybe we should keep it simple by looking at assets such as Price-to-book ratio. Walter Schloss was a legendary investors with proven results, he kept his method simple and there is no need to talk to and try to understand management. More about this man can be found here.

Patience. If you cant find anything to buy in the current market, then dont buy. Some of us uses TA to time our entry and exit, so if there is nothing at the moment, then wait.

 

Is it time to short S&P 500??

One thing that investor does not like is uncertainty from events and in the recent weeks and months, this has reflected in the market. If you think that this is a good time to short the market, for e,g S&P500, one can invest in a inverse exchange-traded fund(ETFs) as a hedge against a correction.

To short S&P500, one can invest in Proshares short S&P500(SH). As this is an Inverse ETF, you buy instead of short sell. You can refer here for more information about this ETF.

The chart has crossed the 50MA, but it is still below the 200MA, so is it time to buy?