Do you think you can time the market?

I look towards the stock market to help enhance my returns from investments. My investment objective is very clear: to get returns that are double that of prevailing fixed deposits (time deposits). Given that time deposits are paying about 2% to 2.5% or so, I am looking at generating returns on my portfolio of at least 4% to 5%. So far, I have managed to meet my investment objectives mainly due to the buoyant stock market as well as careful investments in blue chip shares.

My achievements have very little to do with my own ability and skill. 95% of it is pure dumb luck! I happen to start going into equities since the 2003 SARS hit Singapore and our stock market and have been selectively trading blue chip stocks over the period of 4 years plus. The question you must be thinking is how does he time the market?

Timing the market is difficult
The problem of timing the market is that unless you have the ability to tell the future, timing the market at its very peak and its very trough are virtually impossible. However, what is possible is riding the trends while the market is moving towards the trough adn moving towards the peak.

So far I have been very fortunate because I manage to ride the bullish streak on and off through some of the blue chip counters such as SIA, Singpost, DBS, OCBC, UOB. Of course I do not own all these counters at the same time (though I wish I did!) but have held them on and off during these 4 years. I do not know technical analysis so my approach has been to use fundamental analysis to understand what are the key factors driving the outlook and earnings of these companies and more importantly, how other investors would perceive it. The share price is a function of the expectation of future earnings of the company as well as its business performance. The share price is also a function of investors perception on these and their sentiment. I take these factors into consideration in my investment decision while evaluating the price level of a company's share.

My approach to stock picks
I pick mainly blue chip stocks that have a track record of dividends, preferably dividend yield is close to or near fixed deposits returns. Strong competitive position in their respective markets is also a quality I look for and also the prospects for that company as the broader local and global economy grows. Liquidity is another concern because illiquid shares can leave your funds stuck during a time when you want to cash out your equity holdings and move your money to safe havens such as treasury bills or Singapore government securities.

A tale of two stocks
Singpost
To provide some examples of what stock picks I do, here are some examples. :-) Singpost was a share I have been monitoring even since its IPO, it is a type of share I will hold long term although I have been trading in it when its price shot up a lot last year. I still hold it. Why do I hold Singpost? While some people were spooked by the liberalisation of the postal service sector this year, in reality, Singpost is in such a dominant position for basic mail and post services that it is effectively a monopoly. The capital infrastructure needed to get into basic postal services are too prohibitive and cannot be easily duplicated by any new entrant. But what's really sexy about Singpost is that it is a monopoly on agency services. It has one of the largest (if not the largest) retail presence for accepting counter payments for statutory fees, charges and payments such as TV licences, CPF top-ups/contributions, income tax, property tax, road tax, etc. There is still a significant segment of residents here who do not own a ATM card and do not know how to use the internet to make payments. I think it's long-term prospects are good even with the occasional hiccup when they tried to buy a local SME.

China Aviation Oil
My purchase of this stock was really pure speculation and not completely in line with my investment strategy. I happened to chance upon some internet chatter than this share could be a performer after it went through restructing. I monitored it for some time and decided to go in at 1.03 for 10 lots. The price was pretty stable and it shot up to 1.17 at one stage and I sold it. On hindsight (and that's why you can never 100% time the market unless you can tell the future!), it has since go up to $2.30+ and I missed out on $13,400 profits on just this one counter. :-( This and many lessons have taught me that you can never time the market, so take your profits and run! I have also met some people who lost money on CAO before it collapsed under its losses from trading oil derivatives under old management and it is this human greed for more profits and fear of losing out potential profits that you and I as investors must guard against.

What is your own investment objective and strategies? Share them in my comments section!

Be well and prosper.