Oh boy, the last time I wrote a piece on the issue of warchest (see here) and pacing your buying activities article (see here) was back earlier in the year in Mar and June respectively. Back then, the mood in the market was extremely buoyant and it appears that nothing could stop the market from trending up and higher each time.
The local STI index is still hovering at around 3,000 points, and we can immediately see the sourness turned mouldy bearish atmosphere in the market. If you have been approaching your buying activities with some margin of safety, you shouldn’t be looking at a large paper loss at this point in time. Imagine what would happen if the STI plunge to 2,500 or 2,000 points. If you are already looking at a large paper loss at this point in time, then let this be a learning experience that your entry price have not considered the margin of safety required to withstand a down market.
What can be worse from here is the inability for you to take opportunity in this opportunistic time in the market due to the lack of warchest fund. I’ve spoken quite a bit on the topic of warchest in my previous article so I will not repeat that again. The truth is these warchest provides us with a valuable call option to strike whenever we think the market presents an opportune time to do so. Some investors may have utilized all their funds previously and are either awaiting for market to reverse up or let the market dictates your holding portfolio. It is true that you can wait 3 to 5 years for the dividends to get even on your buying price, but you certainly want to make some good returns during opportune times like this. If you have a lack of warchest fund, then you lose that moment to capitalize.
There are also some investors who are sitting on plenty of warchest and are afraid to deploy them now that the good times are over. My advice would be to spread them wisely. It is absolutely fine not to have catch the bottom of the shares you are eyeing on. Just make sure you have plans to average them out if the market turns more sourish. For example, you can average down on STE at $3, then next at $2.70, and then at $2.50. I’ve seen some investors averaging down at $3, then at $2.98, then at $2.95. If you are averaging down this way, you would have exhausted your funds very fast and you will be out of bullets very soon.
Most investors emerge as winners from the behavior they did during the down market and not during the up market. Consider your options, strategies and make the best out of our resources during these opportune times.