Over the past few years, due to high optimism (>75%) in Level 3 (US) and Level 4 (World) stock market, focus has been in shorter term trading / investing, as if carefully walking on thin ice. With recent sudden meltdown of global stock market from bull to bear market with over 20% correction, now there is more opportunity for longer term investor as significant discount is given for many giant stocks, especially for cyclic sectors (eg. bank / property / airline / technology stocks, etc).
We don’t have to buy stocks at the lowest price (not possible to time the market this way unless one is very lucky but even so, luck may once come once, speculative in this way) but we could buy at low enough prices, eg following discount in share prices below the intrinsic value. Warren Buffett is fine to buy “wonderful business at fair price”. If one could buy giant stocks with strong fundamental at undervalue prices (almost a steal for unfair price with fear created by market), then one should grab on the rare opportunity.
Similar as shopping, we don’t have to buy at the lowest price (best discount) of a handbag in a town because there could be always another competitor offering a lower price a few days later. If a buyer is hesitating (greedy to buy at the lowest or no deal), may end up not buying anything at all, when keep on waiting for the best deal with no clear ending.
Instead, define a discount comfortable to oneself (eg. 20%-50%) compared with regular prices, be happy with the purchase. As an investor, more importantly is to achieve a consistent profit over a longer period, not a cyclic performance (big win or big loss) in short term which could be stressful.
It is the same as searching process for life partner (potential husband or wife), one could not keep on waiting and hoping for the “best” as one may not have the time and luck, each opportunity missed, may end up a single for life. Some may have stricter criteria for boy friend or girl friend or life partner before settle down, this is personality based, but when criteria is too high, may not be realistic.
Luckily stock investment is easier than choosing a life partner. One could diversify the risk of timing into several entries or exits. For example, when stock market is falling to a desired low price (but may have further downside due to bearish trend), an investor may trigger the first buy with contrarian approach (similar to Warren Buffett styles) with 1/3 capital. When stock market has chance to drop to a historical low point (eg. low optimism of recent crude oil price, can be traded with USO oil ETF), then one has option to trigger another 1/3 capital. Finally, when market is recovering with clearer uptrend (but much higher prices than previous 2 entries), one may use up the remaining 1/3 capital. This strategy of capital allocation is best described with Chinese idiom of a clever rabbit with 3 caves to hide from potential enemy (狡兔三窟), similar to diversification of “timing risks” over a period of low or high optimism.
Unsystematic risks (eg. negative news related to business, management, etc) could be minimized with an investment portfolio of 10-20 giant stocks with strong business fundamental. Even one may have limited capital (eg $1000), may consider ETF (eg. MSCI World stock ETF) to diversify over 1000 global blue chip stocks.
At the same time, systematic risks (eg. black swans related to global financial crisis, changes in political economy – interest rate / inflation, etc) could be minimized with entry of global stock market at low optimism <25% (currently 38% optimism), exit at high optimism > 75% (eg. over the past few years). Apply probability investing strategy with optimism, instead of speculating in daily stock market, guessing what could be the next move of Trump or possible market responses.
In fact, over the last few years, global stock market has exceeded 75% optimism 3 times, creating 3 times of “wolf is coming”, currently the third wolf (falling down from 75% optimism) has become a mini bear with over 20% stock market correction, if market fear is not controlled over the next few months, resulting in real economy is affected (eg. lower quarterly GDP) or hurting other investment markets (eg. property), then it could evolve into a big bear, i.e. global financial crisis, which would have over 50% major correction in global stock prices.
“Luck” is an opportunity given fairly to everyone but only accepted for those who are prepared and ready to take actions when conditions for actions (Buy / Hold / Sell / Wait/ Shorting) are aligned with own personalized investing strategies or trading plans.
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