Take a simple recent case when everyone rushes to the supermarket when the announcement of the Circuit Breaker was announced. One takes a look at another of what he or she is doing and follows and the number gets larger as it surmounts a certain capacity.
The same logic applies in the stock market.
In a bull market, most people would look for a consensus decision to pick the same companies that would attract the most talking point which would drive the price up. It is very “comforting” to know that if 100 of the market participants are buying it, then this purchase cannot be horribly wrong. But little did this person knows that he would be buying at a higher valuation than his peers are.
The same logic applies in a bear market.
Everyone wants to wait until the market reaches the bottom as if this was an easy prediction to begin with. Even as the market has actually bottomed (on hindsight), most market participants continued to hoard their warchest as they are unsure if the market will continue to fall the next day.
What this means is that no one can not only predict the bottom but it is also extremely difficult to put in a reasonable sum of warchest when market has actually bottomed. After all, what is the use when an investor is successful at catching the bottom but only allocate 10% of their entire portfolio into the market when it comes.
The overall returns will still be negligible and average at best and this strategy may not even beat a simple strategy such as Dollar Cost averaging consistently.
What Investors Should Be Doing?
I don’t think I should be giving anyone any advice just because I really have no idea where the market direction is going to go in the next one week or one month or even one year.
But what is almost certain (key word is almost so still not for sure) is that in the next 3 to 5 years, we are probably going to see the market going much higher than what the current market’s valuation is offering.
As a point of reference, the current STI levels right now is similar to what we’ve last seen in 2016 but from a valuation perspective it is actually cheaper than 2016.
Today’s STI valuation of the market is close to 10.5x which is close to last scene in 2012.
It is actually pretty rare to get this sort of valuation in a decade era so I think it is still offering a lot of real good value out there to investors.
If you are still in an accumulation phase like me, you should be aggressively allocating most of your warchest to work. The % allocation can be fit to your profile needs but I think this number should be more than 60% invested at the very least.
You will thank yourself for doing this when you look back at this period post-Covid a few years from now (we’ll likely resume normal life in 2022 so this is not a really long time where you cannot see light at the end of the tunnel).
My portfolio returned 26.7% back in 2016 (Link Here) and then 19.7% in 2017.
It was built upon a strong foundation when I took a lot of advantage of the market at this level when we were having the Brexit and Oil Crisis situation.
The situation might be a lot dire now with unemployment almost at an all time high and many businesses going bust but with all economic cycle this will past too some day, and when that day comes, you’d be sure that you thank your old self for taking this courageous step today.
P.S: Anyone remembers this Insurance Ads back in 2014?
Thanks for reading.
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