Riding the Bull: September 2007

The picture above shows the famous bull that you can find in New York City which was taken in 2002.

Riding the bull in the equity market
The Singapore stock market has been relatively bullish this last week or so following the Dow's performance in breaking 14,000 points. The STI is also testing new highs at 3,800+ and news about the private property as well as HDB resale market has also grown significantly.

For my own personal investments, I suffered some realised losses because I had bought into a few stocks that were trading at relatively high levels prior to the August 2007 correction. So when the correction hit, I didn't immediately sell but waited about 2-3 weeks to get out of the under-performing stocks and bought into banks and oil and gas sectors selectively as these were available at reasonable prices relative to their dividends as well as their overall business.

My few picks are STI component stocks and have benefitted from this recovery into bullish momentum that sees them performing well above any fixed deposit, treasury bill or even the CPF 4% return on Special, Medisave, Retirement Accounts.

Riding the momentum of the market
Whilst it is challenging to consistently outperform the market, there are advantages to riding the momentum of the market if you have the experience and necessary temperment to invest in stocks and shares. The key is discipline, i.e. to invest only monies you can afford to lose and to have the patience to do a little bit of research into the companies of the stocks you are investing.

Investing money you can afford to lose puts you under less pressure. This is because when you invest using borrowed money e.g. on margin or using share financing, the interest costs eats into your gains and if you make paper losses, you may need to top up your margins as the value of your shares drops below the amount you borrowed. In addition, if you are a contra trader, that is, you buy and sell shares within T+3, you will also feel pressured to sell or buy back within this period to close off your position or risk suffering big losses should your decision be wrong.

A buy and hold strategy can pay off if you hold quality stocks that are undervalued. Of course, that sounds good in theory but how do we put it into practice? I do not have any magic formula on my own neither do I claim to be able to generate extraordinary profits. But so far my foray into investing in equities has yielded me realised annual profits of about 2 months salary on average in the last 5 years. :-)

I realise that reading helps you develop the type of mindset and approach to managing your own money. By continuing to invest in expanding incrementally your understanding of both stock market mechanics as well as investing psychology, you become more attuned to opportunities in investing.

Investment is about risk taking
Investing is inherently risky. There is no guarantee of making money and there are real risks of losing it all. However, if you are serious about growing your own retirement nest egg and to have a big say on WHEN and HOW you are able to retire, you should consider taking some calculated risks now when you still have a job, a stable income and your health.

By participating in the growth of markets, one can then grow our investments prudently while making considered investment decisions while balancing risk and return. There is no risk-free asset that yields a high return. To get a reasonable return (to me it is at least 2-3 x rate of inflation or rate of risk-free treasury bills) of at least 6 to 10%, I need to take on some risks and invest in the Singapore Exchange.

While I have been fortunate because my returns have been mostly due to blue-chips performing in line with the general economic conditions, I was also fortunate that I took that first step back in 2003, to learn to invest my own monies in equities (stocks and shares), treasury bills, foreign currency time deposits and plain vanilla fixed deposits. This is just a small fraction of the investment assets available but has allowed me to grow my savings at a rate faster than inflation.

Different paths but one similar destination
We all take different paths in our lives in terms of how much and how do we spend, save and invest our hard-earned monies. No matter how we want to live our lives, we have to recognise that ultimately, each of us has to take responsibility for our returns.

Decide what and how you want to achieve your own definition of financial freedom for the path is unique to each of us.

Be well and prosper.