Monday, May 24, 2010

Time the Market and Strategy

Seem like there is a lot of interest on the topic of time the market and investing strategy, please drop your comment at this post. The old post is too long to read already.


  1. 二哥,大马股市会不会因为固打制的废除而出现整个股市被从新value的可能。另外,一般value一家公司的pe会以forward pe为主,可是面对周期股如maybulk,ioi,二哥还会用pe来预测股价吗?

  2. Here is my 2 cent. If we are talking about timing the market, then we have to put a horizon or time frame into consideration. If one is looking for a very long haul like WB, then all he/she needs to do is time the burst and up swing. Of course, we can't be 100% accurate, but if we could get a 75% correct, I believe that is enough for us to laugh all the way to the bank.
    For shorter term, it is harder to gauge the market. It is very tricky in short term. It is more mentally thn anything else. If you are a trader, things would get very ugly if you bet on the leaking boat. The storm would wreck the boat, and you would find yourself swimming among the storm. But, if you are betting on the right boat, the chances of you getting through the storm is high. The problem is most of the time, it is hard to get a cheap ticket to get to the solid boat. We could only get the cheap ticket for the solid boat during the storm. In order to make big $$$, I think we need to be the weather man. We could only predict the storm. Whether the storm would come to the reality is secondary. The real issue is whether you prepared yourself with the " rain coat" and " umbrella" or not.
    I am not a good weather forecast man. But, for me "Dubai" was just drizzle, "China Property Bubble " could be a "hard rain" but this " PIIGS" COULD be the real storm.
    Prepared yourself and make your own judgment. If you ask around your friends or buddies, most of the time, the one who hold 100% equity would say it is a " drizzle" but the one who hold 100% cash would hope for the storm.
    I ate my own cooking here. Reduce, my equity-cash ration to 60:40. Happy Trading


  3. Sg Buaya, agreed to your comments. That is why i said dont time for the "kacang putih" drop and caught by the short term fluctuation. Even though the book of "Intelligent Investor" by Ben Graham is more than 50 years old but the topic of market fluctuation still valid today. As retail investor we dont have any choice but to be mentally and financially prepared to withstand or capitalize on it. I am also follow the cash-equity ratio strategy as illustrate by Ben Graham in the form of bond-equity ratio. This is a very good strategy but most of investor failed to appreciate it. For those who articulate, 100% committed in equity is new to the market or have limited capital.

    Same to you, happy trading.

  4. Frog, for investing in cyclical stocks like IOI and Maybulk, market timing is more important that PE. PE is not the only method in investing. Different stock or sector, we to have different method.

  5. Warren Buffett is the best long term guy I have ever seen. I am not allowed to post charts here. I made some research on his buys back to the early 1970s. He basically buys aggressively when the market is really dull and pessimistic and he is still doing the same thing today. The index/share price of his purchases could go sideways for a long, long time but he doesnt really care about it. Some stay at the same level for more than 5 years. Imagine holding a stock for more than 5 years and the share price does not go anywhere when half of the market seems rocketing into space. It takes a lot of tolerance to keep ourselves away from these temptations.

    Buffett rarely invests in cyclical stocks lol. I have never heard or read of him investing in a few cyclical companies...

    2ndbrother, would you mind explaining the cash-equity ratio strategy and how you implement it?

  6. 2nd Brother :
    How long could you and the others out they wait for the big drop. Here is the tricky part. Could you wait for another big drop like in 2008 ? It would probably not happen again in my life time. So the million dollar question is what is " kacang putih" drop ? Everyone has their own set of measurement. How are you going to measure it ? Again it is back to PE, Dividend yield, PS Cash Flow per share, etc that kind of tool to measure. Otherwise, how do we conclude "low" is low ? We always conclude that we would not be able to buy at the lowest which I think holds true all this while. Hence, there is the idea to buy in stages. But still we need to have a point to start with. At what level we should start ? It falls back to the " tools" of measurement I mentioned just now.
    And again, there is no point of talking without action. Do it ( buying in stages ) if you think the price is at the level that you are comfortable with.

  7. Akagi, I agreed with you that the type of panic at year 2008 would not occur anytime soon. If investor only time for this kind of drop to enter the market then he might stay sideline for years. Referring to the original post which i talked about "Time the Market", if you ready until the last sentence, i did mentioned that at normal day we shall stick to good quality stock. Preferable growth stock or growing stock (growing at rate 10-20%) which also pay good dividend.

    Of course nobody how low is low. George Soros did mentioned that market tend to be excessive. To you it might be low already but it can be even lower. Similar high can be higher. WB did said previously that he dont know where is the bottom but he simply try it. More recently in year 2008, he did not enter at the lowest level, but after 2 year he is still right to buy at panic time.

    At crisis, most of the time the tools we are usually using are not applicable. Sometime we just shaking our head why this stock stock is selling damp cheap, then still a lot of people want to sell. Just take Tanjong as example, it drop from 19.00 to 9.50; by any tool whether PE, cash flow or dividend yield, you can safely said that it is cheap at 12.00++, but it dropped to 9.50.

    Maybe you just dont like the word of "kacang putih", but based on historical findings, correction did happened every few years and market bubble and burst every 10-12 years. I just dont have crystal ball to tell at what "low" level is low enough to enter the market.

    The moral of the post is not to show off i am able to time the market, but to share with other that if an investor want to time market then time for the meaningful drop. Not try to predict short term fluctuation, day to day up and down.

    At my first post i already mentioned that i always in dilemma, because there are no "sure correct" method to invest in stock market. Not like mathematics that will give you one exact answer.

  8. 2nd Brother :
    I think you missed my points here. What I am trying to say is we must try our best and use our best tool to gauge or time the market. Maybe i should put it this way. If we need to emphasis into more micro view, meaning we went to more stock selection, all we have are the tools that I mention i.e PE, Book Value, PS ratio. It is extremely useful if you like to put Ben Graham into context. You could apply the safety of margin rule. I find the tools are very useful in time of crisis in stock selection. After all, we can't just simply buy even in time of crisis. I would like to pick the most valuable stock at the most depressed price in time of crisis. Don't you think so ?
    To more macro view, in time of crisis, one could just simply bought the best in the fields will do the job just fine. Imagine buying Public Bank among the among the banks in crisis time. Buying GE in time of crisis. or just like you said buying Tanjong in time of crisis. But if we are into more micro view( stock selection), the return I believe would be more.
    Anyway that is also not my points he in my previous comment. I am just saying, once we time the market, or in time of crisis, we must have the gut to shoot. No point keeping the bullet in the fridge at home when the chance is there.

  9. 2nd brother :
    Re-read the comments I wrote. The wording is absolutely rude. Should be more careful with my wording. After all, I am still in the path of learning. As usual, happy trading.