Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Sunday, 23 November 2014

Sticking to a strategy is the most important for an investor

While the Dow is climbing to all-time high, some of us maybe feeling annoyed with the lackluster performance of the Singapore stock market. As a comparison, the Straits Times Index is still 13.7% away from its all-time high that was in October 2007, 7 years ago.

In this period of 7 years, there are numerous events and surprises. All of which leading drastic movements of stock prices, that saw the STI crashing to a low of 1594, more than 50% loss from its all-time high. This crash occurred only 4 months after the STI reached its peak.

Most amateur investors would buy at the high and sell at the low. At the high, they do not want to miss out on the upcoming bull run and jump in without studying the fundamentals of the company that they invest in. Such companies are often of poor standards, only used as tools for speculation. Hence, an investment strategy is key to success in investing. It should include the criteria and purpose of buying and selling. This is to ensure that greed and fear is removed from the selection procedures.

A strategy can be as simple as investing a constant amount of money regularly. This is also known as dollar cost averaging. By investing a regular amount at a fixed interval, the investor's timing of starting such a strategy is key to his performance as his starting entry price will affect its average price afterwards. An investor has documented his investment performance using this strategy. It is modeled after Phillip Securities’ Share Builder Plan (SBP) and the amount is GIRO-ed to automatically invest the amount in the ETF. He invested in this on Jan 2008, just months before the large plunge of the STI but he was able to achieve an annualised return of 7.3%, after reinvesting all dividends and deducting all costs.

This is just an indication of how important an investment strategy is. Should an investor stick to what he believes in and a strategy that is proven to work, even through the bad times, he is bound to reap back his rewards. As data has proven, the market is always upwards moving in the long term, but it is up to the individual to realise the profits, only if he is able to withstand the short term pressures.

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1 comment:

  1. Can't agree more with you! Also, your blog layout is sleek and cool.