Saturday, October 17, 2009

Maybe Sometimes Love Just Aint Enough

Went to Smart Expo at Suntec last weekend. I heard some get rich stories about how poor people made it good through property investment and it made me sick. Nonetheless, I took the opportunity to grab some books as MPH had a booth there and had a 20% discount. Bought close to $100 worth of books. Teh Hooi Ling's "Show Me The Money Vol 1. & 2.", Peter Lynch's "One Up On Wall Street" and Jeremy Seigel's "Stocks For The Long Run" are on my book shelf now.

The STI broke through the 2,700 levels along with Dow breaking 10,000 and the HSI surmounting 22,000. The STI gained 2.09% while my portfolio gained 4.74%. Most of the portfoliogains were due to Biosensors crazy surge on Friday, while Asiatic edged up slightly on news that it was venturing into green energy.

Read some crazy but true things on the CNA forum. There was this one guy who shared how he lost and gained back his fortune from the stock market. More importantly, he said this, "in the bull run, TA is always correct." In fact, buy and hold can help you make more money than through a short term trading system, due to transaction costs. However I would like to clarify is that most of the studies advising against short term strategies come from the US where transaction costs are minimal but there are taxes on capital gains.

Another significant difference is that the studies done by Jeremy Seigel, support the case that stocks are good for the long run provided that the dividends are reinvested. In Singapore, I am aware that there is a share builder programme but that is mainly reserved for blue chip stocks. otherwise, i am not sure if there is a way whereby dividends can be reinvested meaningfully in Singapore.

One thing I also want to share with people who still believe in the "buy and hold" strategy, something I read from the "Stocks for the Long Run" book. That while you might be able to reap in great returns if you sell at peaks and bought in at bottoms, it is close to impossible to do so because professionals have tried to do so and fail. Rather, it is better to buy and hold, with additional buying in when the market is at the bottom, as bottoms can be roughly approximated. As a rough guide, you can start buying starts which have been battered but are fundamentally good, about 18 months after the peak.

The second half of October looks menancing as history's greatest falls occur there. If you are worried, you can start doing you homework now and create a shortlist of stocks you wish to buy in Novemeber when things get clearer. While the upside is not as great as 4 months back, current media headlines suggest that the strength of the stock market has yet to permeate the general population. People are still fearful and thats a good sign.

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