Fully vested always vs Market Timing approach

[Greenrookie]

From my blog, thought it might generate more comments here. Waiting to hear from buddies!

I did a simple test, using these 2 approaches to STI index investing and want to see which one will fare better when back dated 20 years. At such, the investor would have go through AFC, Sars + Gulf war and the GFC.

To do this test, I make a lot of assumptions, for academic purposes, investors from either 1 approach could well do better or worse if some of the assumptions do not hold true.

Assume:

1) Investor A and B both start with $5000 and have $1000 fresh funds to invest every year.

Investor A:
Investor A stay fully vested and invest annually. For every year, I use roughly the mid point of the STI for the year to determine his entry point, someone with luck or better TA skills might have an entry point lower than the one I used.

Investor A invest fully when he start in 1995, and thereafter every year, invest $1000 into the STI.

At 2014, he will have STI units worth about 36K, and his total invested capital will be 24K.

A ROA of 50% over 20 years.


Investor B:
Investor B will only enter the market when STI corrects 40% from the last known peak with half of his money, and another half if Market correct 60% from his last known peak. He will liquid half his units and hold cash when returns exceed 100%.

At such, he did not invest his 5k in 1995 but did vested 3.5 k in both 1997 and 1998. He saved his annual 1k and invest 2k in 2002. In 2005, he liquidated half his units and continue to accumulate cash,

In 2009, he became fully vested again 2 tranches of 40% and 60% off the peak of STI.

He has no chance to liquidate his units till now.

So at 2014, his units are worth 38K and still holding 6K cash. Total portfolio is 44K

A ROA of 83% in 20 years.

Conclusion:

This is a simplistic test, more for fun than analysis. Just wonder if my temperaments is more suitable to be Investor A or Investor B.

The worst thing that could happen is selling out at a loss in a bear market. Also, if we are holding companies instead of STI index, they could do better(Dividend effects) or worse (belly-up) than STI

[Temperament]

From my blog, thought it might generate more comments here. Waiting to hear from buddies!

I did a simple test, using these 2 approaches to STI index investing and want to see which one will fare better when back dated 20 years. At such, the investor would have go through AFC, Sars + Gulf war and the GFC.

To do this test, I make a lot of assumptions, for academic purposes, investors from either 1 approach could well do better or worse if some of the assumptions do not hold true.

Assume:

1) Investor A and B both start with $5000 and have $1000 fresh funds to invest every year.

Investor A:
Investor A stay fully vested and invest annually. For every year, I use roughly the mid point of the STI for the year to determine his entry point, someone with luck or better TA skills might have an entry point lower than the one I used.

Investor A invest fully when he start in 1995, and thereafter every year, invest $1000 into the STI.

At 2014, he will have STI units worth about 36K, and his total invested capital will be 24K.

A ROA of 50% over 20 years.


Investor B:
Investor B will only enter the market when STI corrects 40% from the last known peak with half of his money, and another half if Market correct 60% from his last known peak. He will liquid half his units and hold cash when returns exceed 100%.

At such, he did not invest his 5k in 1995 but did vested 3.5 k in both 1997 and 1998. He saved his annual 1k and invest 2k in 2002. In 2005, he liquidated half his units and continue to accumulate cash,

In 2009, he became fully vested again 2 tranches of 40% and 60% off the peak of STI.

He has no chance to liquidate his units till now.

So at 2014, his units are worth 38K and still holding 6K cash. Total portfolio is 44K

A ROA of 83% in 20 years.

Conclusion:

This is a simplistic test, more for fun than analysis. Just wonder if my temperaments is more suitable to be Investor A or Investor B.

The worst thing that could happen is selling out at a loss in a bear market. Also, if we are holding companies instead of STI index, they could do better(Dividend effects) or worse (belly-up) than STI

A or B? How about C = A+B? We can even do our own mini STI ETF by next year Jan onwards with 100shrs/lot. Maybe C is the best of both worlds for retirees?

[specuvestor]

Anyone who has done marketing will find that your starting and ending point makes a big difference in what you are trying to sell.

Thats why i believe in medium term market timing on a macro basis, or discipline approach like what Greenrookie described (but very difficult to implement psychologically). Buffett is more the latter as he sees macro impact already factored into stock price. You can see that from his big bets from his high cash during 1997-2000 dot com and buying Burlington in 2009 with cash and surprisingly stock

[CityFarmer]

I am not quite sure the return of A as 50% over 20 years? Is the dividends re-invested?

I refer to SPDR STI ETF data since 2002, a shorter time frame, the 2013 return was close to 240% base on vested fund in 2002. A simplified way of divide by 2 for the dollar cost average method, will give 120%, which is far from the 50%, for a shorter period of 12 years vs the 20 years.

Well, I don't have data dated back to as far as 1995, so not able to verify. How do you get the return of 50%?

From my blog, thought it might generate more comments here. Waiting to hear from buddies!

I did a simple test, using these 2 approaches to STI index investing and want to see which one will fare better when back dated 20 years. At such, the investor would have go through AFC, Sars + Gulf war and the GFC.

To do this test, I make a lot of assumptions, for academic purposes, investors from either 1 approach could well do better or worse if some of the assumptions do not hold true.

Assume:

1) Investor A and B both start with $5000 and have $1000 fresh funds to invest every year.

Investor A:
Investor A stay fully vested and invest annually. For every year, I use roughly the mid point of the STI for the year to determine his entry point, someone with luck or better TA skills might have an entry point lower than the one I used.

Investor A invest fully when he start in 1995, and thereafter every year, invest $1000 into the STI.

At 2014, he will have STI units worth about 36K, and his total invested capital will be 24K.

A ROA of 50% over 20 years.


Investor B:
Investor B will only enter the market when STI corrects 40% from the last known peak with half of his money, and another half if Market correct 60% from his last known peak. He will liquid half his units and hold cash when returns exceed 100%.

At such, he did not invest his 5k in 1995 but did vested 3.5 k in both 1997 and 1998. He saved his annual 1k and invest 2k in 2002. In 2005, he liquidated half his units and continue to accumulate cash,

In 2009, he became fully vested again 2 tranches of 40% and 60% off the peak of STI.

He has no chance to liquidate his units till now.

So at 2014, his units are worth 38K and still holding 6K cash. Total portfolio is 44K

A ROA of 83% in 20 years.

Conclusion:

This is a simplistic test, more for fun than analysis. Just wonder if my temperaments is more suitable to be Investor A or Investor B.

The worst thing that could happen is selling out at a loss in a bear market. Also, if we are holding companies instead of STI index, they could do better(Dividend effects) or worse (belly-up) than STI

[Greenrookie]

Hi city farmer,

I did not take into considerations the reinvesting of dividends. I assume Zero dividends.

The main purpose of the exercise is to see if there is a big discrepancy between the two, STI dividend is only 3% and both will have the 3 % too, although B will have less years of dividends since he stay out fr in 2 years before 1997 and is less vested 4 years after 2005. I do not think the data will change the difference of the 2 much, although the returns of both will be higher ...

[Baldric]

Excellent thread, a question i been asking .

I dont foresee any market turbulance in the next 5 years , so keep investing for now

[Temperament]

Neither can i see anything. Keep investing? Why ? i can't see any bear, bull or black swan. May be some people can.

[Big Toe]

Let's be honest, no one can see what's coming. It is highly likely that interest rates will trend up within the next year or so.
Cost of borrowing will go up. RMB/USD is already strengthening against the SGD, these will point to a higher inflation for Singapore.

No matter which stock market you invest in, the time for extraordinary gains has passed. The gravy train has left.
There maybe decent gains to be had if there are no major upheaval but nothing spectacular for the major indices.
As the US market breaks its all time high, risks is also heightened. The higher it goes, the harder it falls.

Big Toe Strategy: Do nothing most of the time. Keep significant amounts of cash. Liquidate some shares that are fully valued or close to fair price as index hits all time high. Re-balance portfolio and use some of the proceeds to re-invest in more under valued companies during pull backs. Avoid all Singapore residential and industrial properties. It's scary looking at the number of vacant industrial units available for sale and rent with little takers. More investors bought the property for investment than the number of actual business users who need them.

*side track a bit, for vacant industrial units, some investor owners are getting very disappointed with the yields they are getting, many don't get enough to cover interest and bank repayment, thus cash flow negative. Some dont get any tenants at all after being listed at the market for a long time. *

[kagemusha]

lol, such irony.....
"Let's be honest, no one can see what's coming.

It is highly likely that interest rates will trend up within the next year or so.
Cost of borrowing will go up. RMB/USD is already strengthening against the SGD, these will point to a higher inflation for Singapore........"

[Big Toe]

Highly likely does not mean it will 100% happen. It means that there is a high probability that it will happen. To what extent, at what time frame and what magnitude, we do not know.Investment is a game of probability where no one knows the outcome. Our job as investors is to take positions that are favorable to us.

Majority of the people who took positions in the U.S. markets the last few years would most likely made exceptional returns. See link below.
Congrats.

http://www.businesstimes.com.sg/stocks/s...fits-in-us