I have been trying to catch up with many things after coming back from a working trip. One thing I have been trying to do is to get up to speed with reading The Business Times and reports from analysts.
It seems that 2,700 on the STI is something that many are touting as the level with strong support and some say that at that level the PER is very low which makes stocks a bargain. Some went as far as to say that if the STI should go to 2,700, they would be fully invested.
Personally, I do not know if the STI will go to 2,700 and although I will acknowledge that it is a level with strong technical support, I will also say that I do not know if the support will hold or break. So, does that mean that I will not be fully invested at 2,700 points? If I can help it, I won't be.
As prices fall, all else remaining equal, there is better value for money everywhere. If there is better value for money, why don't we buy? Simple, people expect prices to fall more. So, they will keep waiting.
And if prices go up, they will tell themselves they should have bought but hope that prices would fall again so that they get to buy. If prices should fall again, they would most likely buy. This is why double bottoms are such powerful reversal patterns.
I am buying as prices retreat to supports but in smallish amounts. It is hard to say how much more and how long more prices would fall. So, unless we have an unlimited amount of cash, our own cash, we want to pace our purchases.
If our cash is very limited, it would make more sense to wait for the dust to settle and for sentiments to turn more positive before going back into the fray.
Use charts to help in this respect. Look out for reversal patterns and positive divergences. Of course, bear in mind that charts are about probability and not certainty.
Having said this, if our investments are fundamentally sound and if we are not investing with money that we cannot afford to lose or money that is not ours, simply holding on and riding out the turbulence in the stock market isn't all that bad an idea now.
With central banks around the world bent on getting their economies back on their feet, the likelihood that things will improve is greater than otherwise. Businesses will benefit and stocks will reflect that.
If I should be wrong and the whole world plunges back into recession or worse, things are pretty much hopeless then as the financial system as we know it would collapse and we could very well see a big reset that some gurus like Marc Faber have talked about.
So, am I being an optimist?
No, I am being a pragmatist.
Since chances are that the global economy will improve, given time, it pays to stay invested.
However, recognising that things could take a bit more time to improve, it is not a good idea to be fully invested. Not now and not if the STI goes to 2,700.
When to be fully invested in the stock market? Probably never.
1. If we want peace, prepare for war.
2. AK71's simple strategy.
3. CPF or SGS?
4. Art of wealth accumulation.
5. Books for FA and TA.