The recent bull run since the start of 2012 has made many investors wonder if all is well. Will the rally be a fake? After all, things at Europe didn’t really turn for the better at all. Yet, a majority of the days in 2012 have ended with a green on most counters.
Expectantly, those who have yet to enter the market or still licking their wounds from the 2011 bear-lash might fear that it is already too late to jump onto the bandwagon. While those who have a substantial amount invested might wonder if they really had enough weighted on equities. I am part of the latter and to be honest, the lure of chasing other counters which have been rising lately is very tempting. Yet, an article which I have read online taught the most essential stuff in investing is really to wait and do nothing. Sounds easy? But most of us might find ourselves unlikely to do so. We strive for actions and thrill. With the excess capital we have, we fear it might be under-utilised in a bull market. After all, most equities have been moving up at least 10-20%. Why not just jump onto the bandwagon and earn some quick kopi money? Have I even mention the pendulum swing in emotions given the fear of 2011 bear market?
As the article says, “Inactivity is the right longer-term move. It’s about “keeping emotions from corroding the decision process.”
May we continue to be disciplined in our investing approach. Let us not swag in our emotions and strive to be the contrarian investor when it calls to be.
To read full article quoted – “The 400% Man”
P.S. Notice the essence of the contrarian features mentioned in the article.
thevaluethought 
Since the start of the year, I have always thought that it will be just a sucker rally as nothing has been really done to solve the structural problem of the debt crisis. The swing has occurred quite a few times before and I have lose hope in it. Who knows that the LTRO will be such a success in creating confidence in the financial market? Similarly, no one will have expected that despite all other measures that have not been successful, QE actually lifted the stockmarket up from the bottom. Bottom of the line is we will never be able to pick from the bottom or sell to the peak.
When Feb started, I start to doubt my decision to be high on cash and on unattractive stocks that does not rise as much as the rally does. This self-doubt process has been quite excruciating and I start to wonder what should i do in a bull market as I have no experience of what will happen.
At the end, through using a risk-reward analysis, I manage to convince myself that i am not doing anything wrong.
If I put more money in:
Bull Market – I will have a higher 10% return than later
Bear market – I will lose at least 10%
If I wait for Greece and Europe to be in a more stable condition
Bull Market – I will still be in the green albeit having a 10% lesser return
Bear Market – Not only will i not lose 10%, I will be able to buy stock at a cheaper price too.
Given that I have a significant amount of position in both cash and equity, it will be wiser for me to wait since Rule No 1 is always not to lose money.
Posted by shanrui | February 18, 2012, 9:37 amI have come to realise that we can never time the market. So I am usually not comfortable in waiting till all news is rosy before going long. Very often, by then, the market will have moved alot. Think of it this way, the market is filled with millions and millions of players, with a portion being institutional players who are probably more engaged in the market than us. If it boils down to market timing, they will definitely be better than us since they have better access to more inside information. However, if it boils down to time horizon (patience to buy and hold), then we will prevail over them as there is no career risk for us.
Hence, I look at things bottom-up, filter away any macro noise and determine which businesses are able to appreciate when the economic condition recovers. If you look at the STI, even the 2008 GFC resulted in a one-year long bearish market. The 97 AFC resulted in a 1+ year bearish market (since it’s more asian market-oriented). Given Euro conditions which are not going to result in a huge market collateral damage (e.g. Lehman Bro, AIG, etc), we can have a gauge of how far the bearish market will stretch. In fact, in 4Q 2011, news all around were bearish and if 9 out of 10 people are bearish, it’s perhaps a good time to buy and hold lucrative business at a cheap price.
I will still go long in 4Q 2011 even if 2012 prove to be bearish. This was so because it will be better for me to lock in a position and average down, rather than waiting for a favourable time before going all in.
Posted by dzwm87 | February 18, 2012, 10:41 amLike what Buffett said:
The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’
– 1999 Berkshire Hathaway Annual Meeting
Doing nothing while waiting for the right opportunity maybe better than trying to earn some quick buck from the market (which is what many hedge funds and quant funds do)….
Posted by Addy | February 19, 2012, 10:16 pm