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SI Research: Learning To Fish In The Sea Of Stocks

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A colleague of mine once asked me casually over lunch, “What is the very first stock that you had bought when you first started investing?” Thinking back, it would be Straits Times Index Exchange Traded Fund (STI ETF), purchased way back in the year 2009. Quite a sensible choice come to think of it, as the specific risk is well-diversified across 30 blue-chip companies and the STI ETF tracks the performance of the general market closely.

Going into 2019, I would have already been invested in this instrument for one decade! While this may not seem as a very long time as compared to most seasoned investors, I do have a story or two to share after stumbling through the Euro debt crisis in 2012 as well as the A-shares meltdown in 2016. Looking back at my journey, I realised that my approach towards investing can generally be classified into three stages: stock selection, timing the market and time invested in the market

Stock Selection

Like most investors, I started off investing in stocks through stocks selection. Using fishing boats in the sea as analogies for the wide selection of listed company shares, picking the right fishing boat  is akin to choosing the right companies that have the potential to grow into large vessels based on the numerous factors  such as size, speed, durability, capacity, maintenance cost as well as a track record of delivering significant harvest.

Needless to say, the thrill and satisfaction of picking the right boat that can perform exceptionally well is beyond description. Nevertheless, I do have my fair share of misses as well. This went on for a couple of years until one day when a particular boat which I had pinned high hopes on suddenly got caught up in a big wave.

That little fishing boat, albeit having delivered lustrous results in the past and is still continuing to perform, did not survive the tsunami arising from severe weather conditions.

And that was also when I began to identify with the common proverb, “A rising tide lifts all boats”. But only the strongest and fittest can survive a tsunami.

Timing The Market

The idea suggests that share prices of all companies would do well in an upbeat economy, both outperformers and mediocre ones alike. Likewise when the sentiments turned sour, share prices of all counters would sink at the same time no matter if the company was financially strong or bad.

While the outcomes from picking the leaders and the average candidates could differ, the results are often not as distinctive as entering the market at the right time. Furthermore, markets are cyclical in nature and move in predictable patterns. Just like the high tides and low tides happening each day, what goes up must come down, and vice versa.

In that sense, trying to catch the trend of the general market now seems like the easier and more straight forward method to adopt instead of justifying the hassles of going through reports after reports of each individual company in order to identify the potential ones.

Time Invested In The Market

Unfortunately, timing the market in reality is not as easy as it may seem. For instance, although we might already know that an imminent low tide is about to occur at around six in the evening, to be able to pinpoint consistently the exact time when it will actually happen is almost next to impossible. Sometimes being a couple of minutes early or late could mean a lot of differences, especially when large bets are at stake. At times you might get caught in a low tide unexpectedly, or even possibly miss an entire high tide altogether.

That said, time in the market could then be a better approach in that it eliminates the need to second-guess the market’s movement. By putting your faith in a large fishing vessel sturdy enough to withstand the high and low tides, the vessel is put out into the sea the whole time. Catches year after year can then be re-invested back into strengthening the vessel’s hull or enhancing its capability for a bigger catch.

Obviously, investing in this manner would mean the absence of excitement from occasional large windfall, but is certainly a more stable and worriless route towards wealth building.

Over the years, I find that my philosophy with regard to investing had shifted from a more subjective approach (dependable upon individual’s stock picking abilities) towards a more objective approach undependable on random factors such as luck, personal capability and market fluctuations. At the same time, returns had also become less volatile and more consistent. How does your approach differ from mine?f1

 

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