Question on war chest and market timing

[valuebuddies]

And I don't suggest people aim for retirement with pot of gold. That's called laziness ie trying to hit a quick one to stop work

No, this may not be called laziness. I think everyone practises value investing aimed for early retirement, me too. What so wrong on retiring early at 30ish or 40ish? For my case, investing is not only about money but also about personal interest, it would be nice if I can strike my first pot of gold at 30ish or 40ish and then make use of that pot of gold to start my own full time investment journey right? If I can leave my paid job, concentrate on managing my own portfolio and earn a consistent 100k dividend income a year, I would do that at least can have more time to spend with my family.

[valuebuddies]

Anyway, how much will you define as the first pot of gold? 1 million?

I think first pot of gold is the amount that can generate dividends/interest income "passively" to pay for your living expenses. Like in the RDPD Cashflow Game, can exit rat-race when passive income > fixed recurring expenses.

So using yeowiki/paullow hurdle rate of 3-5%, probably $1 - 1.5m, assuming $50k living expenses.

Is the figure important? IMO there is no need to constraint yourself to a fixed target, because with a figure in mind, you will trade for money rather than invest on fundamental. A successful trader/investor buy/sell when time is right/wrong rather than when price is right/wrong, I am still so far from that.

[etan]

I believe there are pockets of opportunity around during upturn and downturn.

I guess I will have more guts during downturn though we know we cannot catch the bottom. The difference in pricing, and hence savings, can be huge. For property investment, one must be able to hold long term, or until the next up cycle, or until en-bloc comes along. And since it is a big ticket item, we cannot simply break up and sell them piecemeal, unlike shares where we can sell them in number of lots whenever we need some cash to tide over.

(v) I want to keep high liquidity so that I can afford a property for investment when time and price is right

[specuvestor]

And I don't suggest people aim for retirement with pot of gold. That's called laziness ie trying to hit a quick one to stop work

No, this may not be called laziness. I think everyone practises value investing aimed for early retirement, me too. What so wrong on retiring early at 30ish or 40ish? For my case, investing is not only about money but also about personal interest, it would be nice if I can strike my first pot of gold at 30ish or 40ish and then make use of that pot of gold to start my own full time investment journey right? If I can leave my paid job, concentrate on managing my own portfolio and earn a consistent 100k dividend income a year, I would do that at least can have more time to spend with my family.

If you are still working full time "investing" like many in the "investment for a living" thread, I define that as working.

In the finance industry I know many who just wants to do nothing after hitting pot of gold. And so that pot of gold is a very huge one

However the pot of gold that I am saying is the pot that enables one to accumulate wealth yet generate cashflow to fund one's expense to be financially free as opmi mooted, which should be around $1m for mere mortals. Those in the high life will have to adjust accordingly as their expense structure is different.

Buffett used OPM to "leverage" and acquire his pot of gold. That's the HF concept Hopefully I can do that in future
http://www.joshuakennon.com/buffett-asso...-fund-ltd/

[valuebuddies]

He was born in a high profile family with good connection, that's what I don't have. I can only dream of managing my own money

[opmi]

Anyway, how much will you define as the first pot of gold? 1 million?

I think first pot of gold is the amount that can generate dividends/interest income "passively" to pay for your living expenses. Like in the RDPD Cashflow Game, can exit rat-race when passive income > fixed recurring expenses.

So using yeowiki/paullow hurdle rate of 3-5%, probably $1 - 1.5m, assuming B$50k living expenses.

Is the figure important? IMO there is no need to constraint yourself to a fixed target, because with a figure in mind, you will trade for money rather than invest on fundamental. A successful trader/investor buy/sell when time is right/wrong rather than when price is right/wrong, I am still so far from that.

Figure is important. 3-5% pa div yield achievable. 15% pa CAGR for 30-40 years is not realistic.

[kazukirai]

Timing the market is difficult. Many people wait for a crisis to happen before they begin to dive in. Question is, when it happens, how quickly will one go in and how much (10%, 20%, all in?)? Psychologically, it's difficult. Also, the big moves in the market happen not over the length of the entire year but over a much smaller time frame within the year. Being out of the market means potentially missing those moves.

On the other hand, not having a war chest means that when crises come, there isn't opportunity to seize the moment.

This is the 6 million dollar question without a good answer.

Personally, I try to remain invested as much as I can given that I have a long time horizon. Cash on hand is an insurance (drag on performance but gives one the option to seize the moment). As to timing, I leave it up to valuation. As valuation becomes more expensive, opportunity cost of holding cash is lower so I move more to cash.

So, the big question for me is not so much about the right timing but whether I have the right tool for valuation.

[zxiank]

Actually it isnt accurate to say that when you're holding cash you're losing out on gains/dividend. Take sgx in the last 2 years for example, some stocks did rose a lot but similarly there are many that dropped. Even the blue chips like kepcorp, noble, starhub, property stocks, etc dropped over the 2 years. So why not see it as by being sideline, you avoided on these paper loss. Why are we so sure that we will definitely gain if we are fully vested?

I did a simulation of randomly buying stocks at various dates. If we bought during the crisis 2008-2009 period, the chances of getting positive results now (2015) can be as high as 90%. ie: Even the lousy stocks can make gains. Conversely, if you bought during 2011-2012, the percentage dropped to 20-30%. A conclusion from this exercise is that having a correct timing reduced your chance of making losses, and thus increased your margin of safety.

[tanjm]

Actually it isnt accurate to say that when you're holding cash you're losing out on gains/dividend. Take sgx in the last 2 years for example, some stocks did rose a lot but similarly there are many that dropped. Even the blue chips like kepcorp, noble, starhub, property stocks, etc dropped over the 2 years. So why not see it as by being sideline, you avoided on these paper loss. Why are we so sure that we will definitely gain if we are fully vested?

I did a simulation of randomly buying stocks at various dates. If we bought during the crisis 2008-2009 period, the chances of getting positive results now (2015) can be as high as 90%. ie: Even the lousy stocks can make gains. Conversely, if you bought during 2011-2012, the percentage dropped to 20-30%. A conclusion from this exercise is that having a correct timing reduced your chance of making losses, and thus increased your margin of safety.

You just did a 1+1=2 exercise.

[karlmarx]

When deciding on a investment, the basis of the decision should be its valuation. The valuation should be conservative; such as not including optimistic projections on its future growth, or discounting its PPE and/or inventory when calculating its book value, or taking into account higher financial expenses (via higher interest rates) in the future.

A bear market provides more profitable opportunities only because valuations become more attractive.

So the question is not whether the bear market is coming, it is whether you can still find value buys. And by that i mean cheap AND good buys; investors sometimes believe what they bought is a value buy simply because there is a (good) investment thesis (which often assumes the future to be optimistic).

Is what you bought truly a bargain buy? If so, you should incur smaller losses should a bear market arrive.

Presently, i do not see more than a handful of companies i am willing to put my money in. In part also because my circle of competence is small. But in general, i find the market to be adequately valued.

I definitely do not see any bubble presently in the local stock market. For one, the volumes are way too low. Market participation by the masses is key to forming bubbles. Besides, the prices of most property and O&G stocks has been deflated. My guess is that most of the investable cash of most singaporeans has been placed into the property market. Has the property market absorbed the cash of most would-be stock market players?